Page 91 - Azerbaijan State University of Economics

Yadulla H. Hasanli: The evaluation of mutual substitution elasticity of capital and labour
factors by application of CES function for economy of Azerbaijan

M.Weitzman, N.Barkalov, A.Granberg, U.İsterli, S.Fisher and others for the period

1950-1987.

For example, M.Witzman took as initial data the indexes for production and

capital for the perio 1950-1969 ( ) and evaluated the

parameters of the CES function:

Y  0,8044156 e 0,02046463 t (0,6397585 K  1,5  0,3602415 L  1,5 )  0,66

R2 = 0,9994216 ; DW = 0,8125811

1
The substitution index is  = = 0,4031043.
1  

Based on results obtained M.Weitzman came to conclusion that the

development of USSR’s economy during the post-war period was due to the fact

that the substitution elasticity was far above one. It is explained by the shortage of

labour force during this period. At the same time M.Weitzman criticized Bogson

and other for application of Cobb-Douglass function with substitution elasticity

equal to one.

The other contribution of M.Weitzman was that unlike R.Solow and others,

during alternative valuation of CES he was the first who applied the non-linear

version of least square method. On other hand R.Solow tried to use the identity of

theoretical determinants and observation results in evaluation of CES production

function.

90