A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries

Sebastian Claro

No 226, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: This paper presents a simple methodology to estimate the elasticity of substitution between labor and capital for firms operating in perfectly competitive markets with CRS production functions. It is applied in a cross-country sample to 28 3-digit ISIC manufacturing industries. The econometric procedure relies on measures of sectorial capital stock, that are estimated for a sample of more than 30 countries. Unlike older studies, the estimates are consistent with hicks-neutral cross-country technology differences. The results reveal that in most industries the elasticity of substitution is smaller than one, rejecting the null hypothesis of Cobb-Douglas production functions. The paper provides then an estimation of ¾LK at a level of aggregation extremely useful for research in the international trade literature.

Date: 2002
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Published as "A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries", Cuadernos de Economía, Vol. 40, Nº 120, pp. 239-257, 2003.

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Journal Article: A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:226

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