Estimates of Substitution Elasticities in Agriculture

Abstract

The paper estimates substitution elasticity between labor and capital in a constant elasticity of substitution (CES) production function for agriculture of seven major producers. I adopt the normalized system approach suggested by León-Ledesma et al. (2010) and the data from World Input-output Database (WIOD) to study to what extent time period matters for the estimated elasticities. The elasticities are estimated on the basis of data from 1995 to one of the years among 1999-2009 respectively. The results show that the time period has almost no effect on the estimated elasticity for India, longer time period lead to lower estimates of elasticity for China, Higher for Brazil, relatively stable for USA and Russia, and inconclusive for Australia and Canada.

Keywords: Elasticity of substitution, CES function, CGE model, Agriculture, factor-augmented technology

JEL Classification: O40, O47