Productivity analysis and functional specification : a parametric approach

This dissertation proposes to develop a functional specification of the cost function which can be used to discriminate among the alternative flexible functional forms and to analyze productivity growth. The problem of choosing among alternative functional forms is tackled by developing a nested representation which takes as special cases several well known forms. Productivity growth is analyzed by considering input price effects, non-neutral scale effects and biased technical change. Total factor productivity (TFP) is used as an index of technical change. Traditionally, the rate of TFP growth has been computed, assuming constant returns to scale, as the residual of the rate of growth of real output minus the rate of growth of aggregate real input. The parametric approach to productivity analysis adopted here allows estimation of the TFP growth rate without requiring constant returns to scale. The stochastic specification of the model incorporates errors arising out of imperfect cost minimizing behaviour. The resulting likelihood function is continuous in all the parameters. A four input version of the model has been used to estimate the total U.S. Manufacturing Technology, 1947-71. The inputs are capital, labour, energy and other intermediate materials. The parameters of the model have been estimated by utilizing the maximum likelihood method. The main hypotheses tested are neutrality of technical change and homotheticity. This investigation suggests that total U.S. Manufacturing, 1947-71 may be characterized by non-neutral scale effects and biased technical change. The scale effects have been capital, labour and energy saving while technical progress has been capital and energy using and labour neutral. The elasticity results indicate that capital and labour are substitutes as are labour and energy while capital and energy are complements. Capital and energy are more own price elastic than labour. Scale economies seem to have contributed considerably to productivi growth in total U.S. Manufacturing, 1947-71. The contribution of total factor productivity is, however, uncertain and perhaps small.Arts, Faculty ofVancouver School of EconomicsGraduat