Abstract

IN THIEIR celebrated article on the constantelasticity-of-substitution (CES) production function, Arrow, Cheney, Minhas, and Solow (1961) estimate factor-neutral efficiency differences between U.S. and Japanese manufacturing industries. They note that there is some slight indication... that the American advantage in efficiency tends to be least in capital-intensive (p. 247). Elsewhere, I have suggested that these factor-neutral differences may be due to differences in factor quality or to the role of capital invested in skills and, if the latter, should indeed be smallest in the least labor-intensive (most capital-intensive) industries (Kenen, 1965, p. 456). A formal demonstration follows: Consider the constant-cost CES production function:

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