Estimated Output Elasticities Research Articles

An Analysis of the Optimal Provision of Public Infrastructure: A Computational Model Using Mexican Data

An intertemporal general equilibrium model is used to examine infrastructure effects on the Mexican national income. Production functions are estimated for the major sectors of the economy in which sectoral output depends on inputs of capital and labor, as well as the stocks of the public infrastructure. The analysis indicates that despite high estimated output elasticities with respect to public infrastructure, increased expenditure on infrastructure has rapidly decreasing benefits. Some benefits could be achieved by modest increases in capital expenditures, although at the cost of significantly higher inflation and real interest rates. The increase in real interest rates causes these benefits to be greatly reduced.

Patents and productivity growth at the industry level: A first look

We use new data on patent counts to estimate the contribution of knowledge to productivity change at the industry level. The estimated output elasticity of knowledge is around 0.30; three to four times larger than that obtained when knowledge is measured by the R&D stock.

The Interregional Impact of Infrastructure Capital

Increasingly, economists and state and local policymakers see a broader link between declining regional competitiveness and the deterioration of highways, bridges, water and sewer systems, and other public infrastructure. Supporters of active industrialization policies point out that one way a region can regain its competitive edge is to upgrade its infrastructure. The Clinton Administration, citing the lack of infrastructure investment as a cause of sluggish national economic growth, advocates massive spending hikes to repair existing public capital and to invest in new public capital. The groups supporting this approach rely on recent empirical evidence showing that public infrastructure investment generally makes a significant contribution to productivity and output [2; 4; 5; 12; 16; 18]. Existing studies, however, report disparate results about the size of the effect of public capital on economic growth. Aschauer [2], using aggregate time-series data, estimated output elasticities with respect to public capital ranging from 0.39 to 0.56. Munnell [18] updated Aschauer's study and reported an elasticity of 0.33 for labor productivity with respect to public capital. The magnitude of the estimated elasticities and the associated marginal product of public capital in these two pioneer studies are generally accepted as extraordinarily large. The debate on their size is extremely lively. Two fundamental issues dominate the debate. First, Aaron [1] draws attention to the implausible nature of the earlier results by comparing the marginal productivities of public and private capital implied by these studies. He finds that the implied marginal productivity of public capital is five times greater than that of private capital. Second, McGuire [14] and Eisner [6] contend that the empirical evidence from the aggregate time-series data is not compelling. McGuire argues that the established statistical relationship may not imply a causal connection between infrastructure and economic performance. Eisner also questions the causal link by suggesting that one cannot

Estimation of Economies of Scale in Banking Using a Generalized Functional Form

THIS PAPER ADDRESSES four issues that arise in the estimation of economies of scale in the commercial banking industry. First, a common assumption underlying many of the studies of economies of scale in banking is the assumption of a Cobb-Douglas production function with exogenous input prices. The use of a Cobb-Douglas production function facilitates the estimation of the output elasticity of cost. However, there does not appear to be any other reason, a priori, for such an assumption. This paper utilizes a Box-Cox (hereafter B-C) generalized functional form methodology to directly test the assumption of an underlying Cobb-Douglas production function. Second, if the assumption of a Cobb-Douglas production function is inappropriate as a description of the production process of the financial firm, estimates of the output elasticity may be biased. The sensitivity of the estimates of this elasticity to the choice of functional form can also be examined through the use of a generalized functional form methodology. Third, no general consensus has been reached regarding the appropriate definition of bank output. Thus, a diversity of measures of bank output have been employed in previous estimates of economies of scale in banking. The sensitivity of the estimated output elasticity of cost to the selection of several alternative measures of output is examined through the use of the generalized functional form methodology. Finally, the B-C estimates of the cost function for commercial banks can be used