U.S. Aggregate Agricultural Production Elasticities Estimated by an Arima Factor Share Adjustment Model

Abstract

In an effort to circumvent the multicollinearity problems associated with direct estimation of the aggregate agricultural production function, many economists have used indirect estimation procedures. Because in equilibrium the partial production elasticities of an industry composed of perfectly competitive firms are equal to their respective factor shares, the latter have been used as a means of estimating production elasticities. Most researchers have simply assumed that actual factor shares are equilibrium values (e.g., Griliches; Rosine and Helmberger). Substantive contributions recently have been made in explaining the process of factor share adjustment by changes in prices and technology over time (Binswanger; Lianos). However, except for the work nearly 15 years ago by Tyner and Tweeten (1965), agricultural economics literature is largely silent on the measurement of differences between actual and equilibrium factor shares. It is this issue with which we are primarily concerned in this article. Therefore, our point of departure is the work by Tyner and Tweeten.