Factor Price Shocks, Factor Substitution and Their Implications For Policy

Abstract

The effects of a change in the government's pricing policy and external price shocks on factors demand is predicted through the estimation of elasticities of factor substitution and price elasticities of factor demand. A Translog Cost Function is utilized to derive the estimates of these elasticities. Our estimates of economies of scale for two sub-periods suggest that significantly large economies of scale were available in the post-energy shock period compared to the pre-energy shock period.[O12]