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Abstract

Studies of the ease of substitution between inputs in production have generally been carried out within a production framework of an explicit functional form. In this study, a somewhat different approach is followed. A model of derived demand for primary factors of production, land, labour and capital is formulated to enable inferences to be made about the characteristics of the unspecified production function. The model is used to obtain estimates of the pairwise Allen-Uzawa substitution elasticities which are secondary parameters of the underlying production function. The reported FIML estimates from aggregate time series data for the period 1920/21 to 1969/70 indicate very low and marginally different substitution elasticities between different pairs of factors, suggesting that both the Cobb-Douglas and CES production function specifications for the Australian agricultural sector are inappropriate.

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