Substitution of Labor and Non-Labor Inputs and Technical Change in Japanese Agriculture

Abstract

DURING the last decade there have been increasing numbers of empirical studies made on technological advance of an aggregate economy or a sector of an economy. The most commonly used procedure for empirical investigations of this kind nets out intermediate product inputs consumed in the production processes. Netting out the intermediate inputs from both sides of the production function implies that there is no substitution between primary inputs and intermediate inputs. It is common knowledge, however, that some intermediate product inputs, e.g., fertilizers and weedkillers, are substitutes for primary inputs, such as land and labor. In reference to the general experience of advanced countries, specifically in reference to Japanese experience of agricultural development, an important objection may be raised. In this paper, I shall focus my attention on the measurement of the elasticity of substitution between labor and non-labor inputs by the use of data both including and excluding intermediate product inputs. I shall estimate the elasticities of substitution by combining cross section and time series data in postwar Japanese agriculture. Indices reflecting changes in production efficiency will be obtained. Finally, I shall compare the results of the grossoutput approach and the value-added approach with respect to both substitution of inputs and improvements in production efficiency. II An Estimating Model of the Elasticity of Substitution Between Labor and Non-Labor Inputs