An Econometric Estimation of Hicksian and Marshallian Elasticities in Indian Manufacturing

• Published in: Southern economic journal Vol. 63; no. 2; pp. 406 - 417
• Main Authors: Gajanan, Shailendra N., Ramaiah, Kirupakaran C.
• Format: Journal Article
• Language: English
• Published: Chapel Hill, N.C., etc Southern Economic Association and the University of North Carolina at Chapel Hill 01-10-1996; Southern Economic Association; Southern Economic Association and the University of North Carolina
• Subjects: Analysis; Cost estimates; Cost functions; Demand; Econometrics; Economic models; Economic reform; Economics; Economies of scale; Elasticity; Elasticity (Economics); Elasticity of demand; Employment; India; Input prices; Liberalization; Manufacturing; Manufacturing industries; Manufacturing industry; Mathematical analysis; Price elasticity; Production costs; Production estimates; Production factors; Production functions; Productivity; Public policy; Rubber; Studies; Substitution (Economics); India
• ISSN: 0038-4038; 2325-8012
• DOI: 10.2307/1061176

The knowledge of substitution possibilities between different factors of production is essential in evaluating the impact of public policies on productivity, employment, industrial growth, and factor intensity. From the point of policy implications, it is important to estimate both substitution and ouput effects. Duality is exploited, and the Hicksian and Marshallian elasticities for 7 major industries in Indian manufacturing are estimated. Indian manufacturing provides an interesting case study, given that India has recently undertaken an historic economic reform program towards liberalization. An indirect production function applied to Indian manufacturing shows that several input pairs are complements, if output effects are taken into account. This is in sharp contrast to earlier studies which estimate only the Hicksian elasticities based on a cost function and find all input pairs to be substitutes. The Morishima elasticities of substitution for an indirect production function are also derived and estimated.