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Homotheticity and Real Value-Added in Canadian Manufacturing

1978; Emerald Publishing Limited; Linguagem: Inglês

10.1016/b978-0-444-85013-3.50010-3

0573-8555

Michael Denny, J. D. May,

Economic Growth and Productivity

For Canadian manufacturing during the period 1950–1970, there is no evidence that real value-added technologies are acceptable. The estimation of production technologies and factor demand equations requires some measure of the output or activity level. Government statistical agencies have developed a variety of measures of real net output, such as Real Domestic Production in Canada or Gross Product Originating in the United States. Using a set of data on Canadian manufacturing from 1950–1970 and a nonhomothetic translog approximation to the cost function. This chapter discusses an alternative real value-added formulation. It is useful to relate the particular problems with real value-added to theoretical knowledge about two-stage optimization and to index number theory. Consistent two-stage optimization requires that the first stage or micro functions be homothetic in the prices. Most index number formulae are linear homogeneous in the variables. For the United States and Canada, it is often possible to approximate a series on gross output. When this can be done, the use of the alternative real value-added function may be useful even if only the first stage can be completed.