Elasticities of substitution and functional separability of the maquiladora industry

<span>Previous studies about the demand of productive factors of the Maquiladora Industry have focused in the labor demand. Such literature has advanced in two directions: specifying dynamic models of labor demand; or deriving the demand of productive factors from production functions that assume constant returns to scale, functional separability or certain substitution patterns among them. In this paper we estimate a translog production function without imposing </span><em>a priori </em><span>these restrictions. Our objective is to determine whether there is evidence supporting those assumptions. In particular, we analyze the hypotheses of constant returns to scale, and the different forms of functional separability in a three inputs production function. We use data that combines annual time series (1990– 2006) with cross section of nine economic sectors of the Mexican maquiladora. We find no evidence supporting the assumptions that have been used in previous studies of factor demand. Specifically, we find evidence of decreasing returns to scale, and that the elasticities of substitution between the productive factors are all different. The estimated elasticity of substitution between labor and capital is below one; between labor and materials fluctuates between 1 and 1.5; whereas the elasticity of substitution between capital and materials is above 2.