Estimate of the elasticities of substitution of the CES and translog production functions in Tunisia

Abstract

On the basis of the CES and translog production functions, this study compares the degrees of capital-labour substitution of a developing country. In order to change the tradition of some modellers, we try to present estimates of substitution elasticity caused by these two production functions applied to the Tunisian economy. In these estimations, we use statistical data about the 1961/2010 period for the five sectors of the global economy by choosing two factors of production. We apply the nonlinear least squares method to estimate the substitution elasticity in each sector of the CES function using the GAMS software and the SURE method in order to estimate the translog function by means of the STATA software. The results indicate a strong similitude between the elasticity substitution estimates for each function, which are significantly below the unity.