New measures of factor productivity in Australia: a Sato approach

Anthony J. Makin and Sam Strong

Applied Economics, 2013, vol. 45, issue 17, 2413-2422

Abstract: This article derives new results of the Elasticity of Substitution (ES) between capital and labour and factor productivity for Australia, an economy which experienced major economic reform that substantially increased the flexibility of its labour, product and capital markets throughout the 1980s and 1990s. It employs a Sato production function specification which has unique properties that enable the estimation of capital--labour substitution elasticity and changing marginal productivities through time. These estimates reveal that the substitution elasticity and labour productivity in Australia rose significantly from the mid-1960s and remained elevated during the economic reform period. A novel contribution of this article is the depiction of Australia's production isoquants to convey how combining labour and capital to produce real Gross Domestic Product (GDP) has changed over recent decades.

Date: 2013
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DOI: 10.1080/00036846.2012.665603

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