Volume 70, #1

“Economic Sciences: theory and practice” is scientific, refereed, biannual journal. The Journal of “Economic Sciences: theory and practice” has been founded by Azerbaijan State University of Economics in 1994.              
The Journal has been received to registration in the centre of international ISSN (International Standard Series Number, ISSN-2220-8739). Also, it has been included by the Supreme attestation Commission under the President of Azerbaijan Republic to the list of scientific publications on economic sciences.

About article
The evaluation of mutual substitution elasticity of capital and labour factors by application of CES function for economy of Azerbaijan

Prof. Dr. Yadulla Hamdulla Hasanli Head of the Laboratory of Modeling of Social-Economic Processes of the Institute of Cybernetics of the Azerbaijan National Academy of Sciences

Abstract. This study estimates parameters of CES production function in a Mathcad system using non-linear ordinary least squares method (Markvart method) based on statistical data of republics of Azerbaijan and Kazakhstan. Identified parameter estimates were comparatively analyzed to reveal a number of findings. For both countries, capital-labour substitution elasticity (s) turned out less than one, which indicates insufficiency of labour, namely qualified labour (skilled labour) in both economies. Azerbaijan have experienced windfall revenues from exploitation of natural resources (particularly, crude oil) in recent years. These revenues induced greatly the imports of capital-intensive products of sophisticated technologies, in other words capital imports. Naturally, scarcity of adequate labour that could deploy increased capital (skilled labour-intensive capital) resulted in decline of reciprocal elasticity of capital-labour substitution. Thus, it can be concluded that utilization of oil revenues to accumulate qualified labour (i.e. development of education, science, etc., technical specializations) would increase reciprocal elasticity of capital-labour substitution. Hence, expenditures on building qualified labour, including spending on education and science are preferred areas of efficient use of oil revenues.

Keywords: Capital, Labour, Substitution elasticity, Production function, Markward method.
JEL Classification Codes: C01, C02