That elusive elasticity : a long-panel approach to estimating the capital-labor substitution elasticity

Arbeitspapier

The elasticity of substitution between capital and labor features prominently in several areas of economic research. However, a consensus estimate remains elusive. We develop an estimation strategy that filters panel data in an original way and avoids several pitfalls - difficult-to-specify dynamics, transitory time-series variation, and positively sloped supply schedules - inherent in investment equations that can bias the estimated elasticity. Results are based on an extensive panel containing 1,860 manufacturing and non-manufacturing firms. Our model generates a precisely estimated elasticity of approximately 0.40. The method developed here may prove useful in estimating other structural parameters from panel datasets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1240

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Fiscal Policies and Behavior of Economic Agents: Firm
• Subject: Kapital ; Arbeit ; Faktorsubstitution ; Substitutionselastizität ; Panel ; Schätzung ; Vereinigte Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chirinko, Robert S. ; Fazzari, Steven M. ; Meyer, Andrew P.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/18879
• Last update: 10.03.2025, 11:45 AM CET