Production structure and input substitution in Canadian sawmill and wood preservation industry

Abstract

We use a translog cost function to analyze the sawmill and wood-preservation industry in Canada from 1958 to 2003. The estimated cost function is homothetic and Hicks neutral. Allen elasticities of substitution indicate that significant substitution possibilities exist. According to Morishima elasticities of substitution, substitution of labour by other inputs is easier than the substitution of other inputs by labour, and substitution of other inputs by materials is easier than the substitution of materials by other inputs. The demand for production labour, nonproduction labour, and electric power inputs is elastic. In contrast to the previous findings of zero or negative rate of technical change, we find technical progress at the rate of 0.57% per annum and a total factor productivity growth rate of 0.54% per annum in the Canadian sawmill and wood preservation industry.