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Evidence on Allocative Efficiency and Elasticities of Substitution in the Manufacturing Sector of Pakistan

Sohail Zafar and Eatzaz Ahmed
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Sohail Zafar: Department of Economics, University of Laval, Quebec, Canada.
Eatzaz Ahmed: Department of Economics, Quaid-i-Azam University, Islamabad.

Authors registered in the RePEc Author Service: Sohail Zafar Qureshi ()

The Pakistan Development Review, 2005, vol. 44, issue 4, 795-803

Abstract: This study investigates the nature of allocative inefficiencies in large scale manufacturing sector of Pakistan over the period of 1969-70 to 1990-91. The study employ translog cost function to examine allocative inefficiency with capital labor and raw material as inputs. We estimate translog cost function along with share equations for manufacturing sector as a whole. The analysis here after performed with and without distortion parameters. The relative price efficiency between each pair of inputs provide the evidence at aggregate level that raw material is over used as compared to labor, while other inputs are equally efficiently utilized. It turns out labor is most responsive factor to change in factor price. Study suggests that long run economic growth could be achieved through adjustment policies that correct input market distortions.

Date: 2005
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