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Title:That elusive elasticity : a long-panel approach to estimating the capital-labor substitution elasticity PDF Logo
Authors:Chirinko, Robert S.
Fazzari, Steven M.
Meyer, Andrew P.
Issue Date:2004
Series/Report no.:CESifo working papers 1240
Abstract: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.
JEL:E22
H32
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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