Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192538 
Year of Publication: 
2008
Series/Report no.: 
Discussion Papers No. 556
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
In a system with n input factors there are n − 1 independent cost shares. An often-used approach in estimating factor demand systems is to (implicitly or explicitly) assume that there is a (independent) cointegrating relationship for each of the n − 1 independent cost shares. However, due to technological changes there might not be as many cointegrating relationships as there are (independent) cost shares. The paper presents a flexible demand system that allows for both factor neutral technological changes as well as technological changes that affect the relative use of the different factors. The empirical tests indicate that there are fewer cointegrating relationships than usually implied by using conventional estimation approaches. This result is consistent with technological changes. I argue that since such unexplained technological changes are likely to affect input factor decisions, a demand system that allows for such changes should be preferred.
Subjects: 
Factor demand
technological changes
growth rates
JEL: 
C32
C52
D24
Document Type: 
Working Paper

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