Search results
1 – 10 of over 1000Sharmila Gamlath and Radhika Lahiri
The purpose of this paper is to explore the properties of the variable elasticity of substitution (VES) production function, and examine the dynamics of growth associated with it.
Abstract
Purpose
The purpose of this paper is to explore the properties of the variable elasticity of substitution (VES) production function, and examine the dynamics of growth associated with it.
Design/methodology/approach
The VES production function is incorporated into an otherwise standard Diamond overlapping generations model.
Findings
Depending on parameter combinations, the economy can achieve a unique and stable steady state akin to that observed in the Solow-Swan model, reach a poverty trap or transition towards an upper bound of per capita capital stock. A special case of the VES production function is also consistent with unbounded growth.
Research limitations/implications
The paper is theoretical in nature. Further empirical analysis could shed deeper insights into the results presented in this study.
Practical implications
The VES production function, when applied to the context of the Diamond model, can capture a variety of growth experiences observed in the empirical literature.
Social implications
In the context of the Diamond model, a higher value of a particular parameter in the production function leads to greater intergenerational income and consumption inequality. Hence, the study provides a potential explanation for intergenerational inequalities observed in practice.
Originality/value
The study demonstrates the empirical value of the VES production function in explaining observed differences in factor shares, rewards and elasticities within and between countries over time.
Details
Keywords
This paper revisits the derivation and properties of the Allen-Uzawa and Morishima elasticities. Using a Swiss dataset, this paper empirically estimates various elasticities both…
Abstract
Purpose
This paper revisits the derivation and properties of the Allen-Uzawa and Morishima elasticities. Using a Swiss dataset, this paper empirically estimates various elasticities both in a dual and primal framework using a production theory open economy model and tests for linear homogenous technology. In addition to reporting elasticity at the mean, the standard practice in the literature, this paper also calculates nonparametric distribution of various elasticities. The paper aims to discuss these issues.
Design/methodology/approach
To assess the effect of price change on input, the paper estimates a translog cost function and to assess the effect of quantity change on price, the paper estimates the translog distance function using the data on Swiss economy. The paper estimates Allen-Uzawa and Morishima elasticity both under homogenous and non-homogenous technology using the Swiss dataset of one aggregate gross output and four inputs (resident labor, non-resident labor, imports, and capital) over 1950-1986. Elasticities are reported and compared at the mean as well as explored by looking at the range and nonparametric distribution.
Findings
This paper shows that constant returns to scale are easily rejected in this dataset and that the elasticities, both qualitatively and quantitatively, are very different under homogenous and non-homogenous technology. These elasticities can switch from complements to substitutes or vice versa when one moves away from the mean of the sample. The equality of the nonparametric elasticity distributions under homogenous vs non-homogenous technology is rejected in all cases except one.
Originality/value
This paper gives a clear derivation and interpretation of different elasticities as well as demonstrates using a dataset how to systematically go about empirically estimating these elasticities in a dual and primal framework. It shows that linear homogenous technology can be easily rejected and the elasticities, both quantitatively and qualitatively, are very different under homogenous and non-homogenous technology. This paper is also very valuable because it shows that the standard practice of reporting elasticity at the mean might not be adequate and there is a possibility that these elasticities can switch from complements to substitutes or vice versa when one moves away from the mean of the sample.
Details
Keywords
Although the importance of the elasticity of substitution between capital and labour (σ) has been recognized in many areas in economics, this parameter has not received enough…
Abstract
Purpose
Although the importance of the elasticity of substitution between capital and labour (σ) has been recognized in many areas in economics, this parameter has not received enough attention in economic growth. The purpose of this paper is to review the recent development in the importance of σ in economic growth.
Design/methodology/approach
This paper specifically reviews the possibility of perpetual growth and slowdown, and the asymptotic behaviour of the balanced growth path for different values of σ. It also reviews the determinants of the aggregate σ.
Findings
Based on the empirical evidence that the value of σ significantly departs from the Cobb‐Douglas value of unity, the paper recommends employing the constant elasticity of substitution (CES) production function in both theoretical and empirical growth research.
Originality/value
This paper offers a new perspective on the elasticity of substitution between capital and labour due to its evaluation of various factors, methods and approaches.
Details
Keywords
Academic research in the USA and more recently in the UK and Sweden, has highlighted public capital as a significant growth determinant. Public capital, it is argued, has a…
Abstract
Academic research in the USA and more recently in the UK and Sweden, has highlighted public capital as a significant growth determinant. Public capital, it is argued, has a positive effect on private sector output, productivity and capital formation. However, controversy surrounds the empirical results emerging from this literature. Much of the controversy rests on research methods employed. Adds to this body of literature in two ways. First, estimates aggregate production functions for private sector output using Irish data. The stock of public capital is included as an input to investigate the effects of government investment on private sector productivity. Second, uses modern time‐series techniques to test the hypothesis. Employs the Johansen (1988) cointegration testing procedure and error correction modelling on annual data for the period 1958‐1990. These modern techniques produce empirical results which do not support the public capital hypothesis. Suggests several reasons to explain this outcome, and outlines possible policy implications.
Details
Keywords
The purpose of this study is to examine whether the elasticity of substitution (ES) varies between developed and developing countries.
Abstract
Purpose
The purpose of this study is to examine whether the elasticity of substitution (ES) varies between developed and developing countries.
Design/methodology/approach
The author derives the growth regressions from the Solow model under the constant elasticity of substitution production function by using the first-order Taylor series expansion and estimate them for each country group classified based on time-varying behavior of income per worker using the data-driven algorithm.
Findings
The ES is not unitary and varies among country groups. Developed countries generally have a higher ES than developing countries.
Originality/value
For the first time, the author uses the first-order Taylor series expansion to linearize the steady-state value of income per worker, as the author considers this approach to be relatively more straight-forward and tractable. Furthermore, the author estimates the equations using both cross-section and panel data techniques and employs the data-driven algorithm proposed by Phillips and Sul (2007) to classify countries.
Details
Keywords
The purpose of this paper is to shed new light on the debate about the appropriateness of the Kaizuka rule, a Samuelson type of efficiency rule for public inputs, for the…
Abstract
Purpose
The purpose of this paper is to shed new light on the debate about the appropriateness of the Kaizuka rule, a Samuelson type of efficiency rule for public inputs, for the provision of firm‐augmenting public inputs. Firm‐augmenting public inputs are commonly included in public infrastructure modelling.
Design/methodology/approach
In the microeconomic social surplus framework, and assuming perfect competition, the paper analyses how firm‐augmenting public inputs should be provided in order to maximise the welfare of consumers and producers. For this purpose, the paper develops a social surplus efficiency rule, i.e. the Boadway rule. Afterwards the question what the characteristics of firm‐augmenting public inputs mean for its efficient provision is examined.
Findings
The findings show that under perfect competition an omniscient government is unable to efficiently provide firm‐augmenting public inputs due to the characteristics of firm‐augmenting public inputs but not due to inappropriate efficiency rules.
Research limitations/implications
The findings show that future research would be ill advised to model public infrastructure as a firm‐augmenting public input.
Practical implications
Policy conclusions drawn from models that include firm‐augmenting public inputs, such as fiscal competition and endogenous growth models, should be reconsidered.
Originality/value
The paper makes a strong case that firm‐augmenting public input is not a viable concept for modelling public infrastructure. Rather, firm‐augmenting public inputs are similar to free goods.
Details
Keywords
Raghbendra Jha, M.N. Murty, Satya Paul and Balbir S. Sahni
Analyses the structure of costs in the cement, lime and plasterindustry of India. Using aggregative data for the period 1960‐61 to1982‐83 a generalised translog cost function is…
Abstract
Analyses the structure of costs in the cement, lime and plaster industry of India. Using aggregative data for the period 1960‐61 to 1982‐83 a generalised translog cost function is estimated. It is discovered that (1) this industry has been characterised, by and large, by allocative efficiency; (2) production is characterised by increasing returns to scale; (3) technical progress has been biased against the use of capital; and (4) there exist considerable opportunities for substitution between factors of production. Several policy conclusions of the analysis are also examined.
Details
Keywords
Sharmila Gamlath and Radhika Lahiri
The purpose of this paper is to explore the manner in which the degree of substitutability between public and private health expenditures contributes towards the distribution of…
Abstract
Purpose
The purpose of this paper is to explore the manner in which the degree of substitutability between public and private health expenditures contributes towards the distribution of wealth and political economy outcomes in the long run.
Design/methodology/approach
An overlapping generations model with heterogeneous agents where a person’s probability of survival into old age is determined by a variable elasticity of substitution (VES) health production function with public and private expenditures as inputs is developed. Public expenditure on health is determined through a political economy process.
Findings
Analytical and numerical results reveal that higher substitutability between private and public expenditures at the aggregate level and a higher share of public spending in the production of health lead to higher long run wealth levels and lower inequality. In the political equilibrium, higher aggregate substitutability between public and private health expenditures is associated with more tax revenue allocated towards public health. For most parameter combinations, the political economy and welfare maximising proportions of tax revenue allocated towards public health care converge in the long run.
Research limitations/implications
The paper is a theoretical investigation of how substitutability between public and private health expenditures affect transitional and long run macroeconomic outcomes. These results are amenable to further empirical investigation.
Practical implications
The findings indicate that policies to improve institutional aspects that yield higher substitutability between public and private health expenditures and returns to public health spending could lead to better long run economic outcomes.
Social implications
The results provide a political economy explanation for the low investments in public health care in developing countries, where aggregate substitutability between public and private health expenditures is likely to be lower. Furthermore, comparing the political economy and welfare maximising paradigms broadens the scope of the framework developed herein to provide potential explanations for cross-country differences in health outcomes.
Originality/value
This paper adopts an innovative approach to exploring this issue of substitutability in health expenditures by introducing a VES health production function. In an environment where agents have heterogeneous wealth endowments, this specification enables a distinction to be made between substitutability of these expenditures at the aggregate and individual levels, which introduces a rich set of dynamics that feeds into long run outcomes and political economy results.
Details
Keywords
Justo De Jorge-Moreno and Oscar Rojas Carrasco
The purpose of this paper is to provide new evidence about the technical efficiency and its determinants in Spanish textile sector during the period 2002-2009. The empirical…
Abstract
Purpose
The purpose of this paper is to provide new evidence about the technical efficiency and its determinants in Spanish textile sector during the period 2002-2009. The empirical results suggest that the effects of trade liberalization have led to higher levels of inefficiency in the Spanish sector, due to the lack of flexibility of firms to adjust to the environment, and perhaps to aggressive competition with fuzzy rules of the game. Controlling for specific factor like age, intensity of capital, salary by worker, regions and market share, the authors have obtained that the interaction between market share and size indicates that as firms have more size are also more inefficient.
Design/methodology/approach
In this paper, the stochastic frontier production function is considered, specifically, a panel data version of Battese and Coelli (1995), in which the technical inefficiency is estimated from the stochastic frontier and simultaneously explained by a set of variables. This approach avoids the inconsistency problems of the two-stage approach used in other empirical works when analyzing the inefficiency determinants.
Findings
This work provides new evidence about the technical efficiency and its determinants can be due to environmental or firm-specific factors in Spanish textile sector during the period 2002-2009. The authors have estimated the Cobb-Douglass stochastic production frontier following Battese and Coelli (1995) model to analyze an unbalanced panel.
Originality/value
The empirical results suggest that the trend of the inefficiency shows a curvilinear behavior in the form of U (turning point third-quarter of 2004). This result is related to the efficiency analysis through Kernel distributions (in static and dynamic form) confirmed a clear process of divergence. In the period 2002-2005 the efficiency of the firms analyzed maintained higher levels than the 2005-2009 period where there is deterioration. This may be related to the increased competition due to the end of the Multi-Fiber Arrangement in January 2005 and the entry of Chinese products in 2004.
Details
Keywords
Mohammad Zakir Hossain and Khalid Said Al‐Amri
The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman.
Abstract
Purpose
The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman.
Design/methodology/approach
This empirical paper looks into an analytical justification to use Cobb‐Douglas (C‐D) production model in order to estimate and test the coefficients of the production inputs for each of the selected manufacturing industries using annual industrial statistical data over the period 1994 through 2007 published by Ministry of Commerce and Industry, Sultanate of Oman.
Findings
The results of the paper indicate that for most of the selected industries the C‐D function fits the data very well in terms of labor and capital elasticity, return to scale measurements, standard errors, economy of the industries, high value of R2 and reasonably good Durbin‐Watson statistics. The estimated results suggest that the manufacturing industries of Oman generally seem to indicate the case of increasing return to scale. Of the nine industries, seven exhibit increasing return to scale and only the rest two show decreasing return to scale. The paper finds no industry with constant return to scale.
Research limitations/implications
The paper could not consider a good number of manufacturing industries and a long period of time series data in the study because of lack of data availability.
Practical implications
Recently, businessmen as well as industrialists are very much concerned about the theory of firm in order to make correct decisions regarding what items, how much and how to produce them. All these decisions are directly related with the cost considerations and market situations where the firm is to be operated. In this regard, this paper should be helpful in suggesting the most suitable functional form of production process for the major manufacturing industries of developing countries like Oman.
Originality/value
The paper shows originality in substance and makes a unique contribution to the literature on industrial economics in Oman.
Details