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New measures of factor productivity in Australia: a Sato approach

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This article derives new results of the Elasticity of Substitution (ES) between capital and labour and factor productivity for Australia, an economy which experienced major economic reform that substantially increased the flexibility of its labour, product and capital markets throughout the 1980s and 1990s. It employs a Sato production function specification which has unique properties that enable the estimation of capital–labour substitution elasticity and changing marginal productivities through time. These estimates reveal that the substitution elasticity and labour productivity in Australia rose significantly from the mid-1960s and remained elevated during the economic reform period. A novel contribution of this article is the depiction of Australia's production isoquants to convey how combining labour and capital to produce real Gross Domestic Product (GDP) has changed over recent decades.

Keywords: Australia; D24; O47; O56; Sato specification; isoquants; production functions

Document Type: Research Article


Affiliations: 1: Department of Accounting, Finance and Economics,Griffith University, Business 3 Building, Parklands Drive, ParklandsGold Coast,QLD 4222, Australia 2: Department of Economics,Griffith University, Brisbane,QLD, Australia

Publication date: June 1, 2013

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