Parametric Characterization of an Industrial Production Technology: The Canadian Sawmilling Industry’s Case

Abstract

The goal of this study was to analyze a long-run technological progress in the Canadian sawmilling industry. Technological progress was considered as any kind of shift in the production technology estimated by total factor productivity growth (TFPG) and other parameters that complemented it. Out of six econometric models that were tested for efficacy in describing the technology, an unrestricted translog functional-form of a long-run total cost function described the technology sufficiently. The industry’s TFPG averaged 2.3% per year over the study period. Factor substitution elasticities implied that it was easy for the industry to substitute labor for capital and energy. The industry recorded increasing returns to scale and economies of scale; and technological progress was biased toward capital-using, energy-saving, and Hicks-neutral for labor and material. The multiple benefits that society derives from TFPG include: being one of the engines of economic growth, mitigation of natural capital depletion, minimization of wasteful-use of factors of production, mitigation of the adverse effects of inflation, boosting economic savings, freeing input factors to be reallocated to production of other goods and services, improvements in industrial competitiveness in the marketplace, and revealing possibilities to raise wage rates. Implications of the findings for industrial policymaking are discussed.