Production Functions and Factor Demand Functions in Postwar Swedish Industry

Abstract

In this paper we present results of joint estimates of factor demand functions in aggregate Swedish industry and in eight of its subsectors using the equilibrium equality between marginal productivities and factor prices. The coefficients of our estimated equations are constrained by the fact that one and the same production function (of the CES type) underlies the two-factor demand relations. The estimation procedure used is the full information maximum likelihood (FIML) method. In order to handle the nonlinear constraints on the coefficients of our equations, we use a generalization of the usual FIML procedure for estimating linear simultaneous equation systems. Most estimates indicate an elasticity of substitution of

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