Substitution Elasticities in the Large- Scale Manufacturing Industries of Pakistan

Abstract

This paper examines substitution elasticities between capital and labour in the manufacturing sector of Pakistan. It is found that whereas the substitution possibilities between the capital intensive and labour intensive techniques of production are rather limited, the substitution possibilities between various activities do exist. It is also found that changes in capital-labour ratio have a significant influence on the substitution elasticity and as such CES estimates, in general, are biased.