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Are factor biases and substitution identifiable? The Canadian evidence

Kenneth Stewart () and Jiang Li ()

No 1808, Department Discussion Papers from Department of Economics, University of Victoria

Abstract: Revised productivity accounts recently released by Statistics Canada are used to estimate a Klump-McAdam-Willman normalized CES supply-side system for the half-century 1961-2012. The model permits distinct rates of factor-augmenting technical change for capital and labour that distinguish between short-term versus long-term effects, as well as a non-unitary elasticity of substitution and timevarying factor shares. The advantage of the Canadian data for this purpose is that they provide a unified treatment of measurement issues that have had to be improvised in the US and European data used by previous researchers. In contrast to previous results, we find that an elasticity of substitution and distinct factor biases of technological progress are not well determined by the model. For the Canadian data, the KMW model does not appear to provide a framework that overcomes the classic Diamond-McFadden- Rodriguez non-identification result. That impossibility theorem is manifested in our findings, not overcome by them. JEL Classification: C51, E23, E25, O30, O51

Keywords: normalized CES system; aggregate elasticity of substitution; biased technical change (search for similar items in EconPapers)
Pages: 25 pages
Date: 2018-10-01
New Economics Papers: this item is included in nep-eff
Note: ISSN 1914-2838
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Related works:
Journal Article: Are factor biases and substitution identifiable? The Canadian evidence (2018) Downloads
Journal Article: Are factor biases and substitution identifiable? The Canadian evidence (2018) Downloads
Working Paper: Factor substitution, factor-augmenting technical progress, and trending factor shares: the Canadian evidence (2014) Downloads
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