Open AccessThe Two-level CES Production Function for the Manufacturing Sector of Pakistan
Author(s) -
Ashfaque H. Khan
Publication year - 1989
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v28i1pp.1-12
Subject(s) - elasticity of substitution , production (economics) , returns to scale , output elasticity , economics , manufacturing sector , production function , cobb–douglas production function , econometrics , elasticity (physics) , capital (architecture) , substitution (logic) , factors of production , function (biology) , scale (ratio) , microeconomics , labour economics , computer science , geography , materials science , archaeology , evolutionary biology , programming language , composite material , biology , cartography
Production functions have been widely studied in the relevantliterature. In this paper, apart from labour and capital, we have usedenergy as a factor input and calculated the elasticity of substitutionbetween these inputs, measured technical progress, and determined thereturns to scale in the manufacturing sector of Pakistan. Since we havemore than two factors of production, the standard Cobb· Douglas and CESproduction functions do not provide satisfactory results. Hence,two·level (nested) CES production function becomes the natural choicefor the appropriate technology. Using this technology, we have found lowelasticity of substitution between the three factors of production.Furthermore, the manufacturing sector is found to exhibit decreasingreturns to scale, having experienced disembodied technical progress atthe rate of 3.7 percent per annum.