FACTOR SUBSTITUTION APPROACH TO TESTING THE TIME VARIATIONS IN PRODUCTION - THE CASE OF TAIWAN MANUFACTURING

This paper is devoted to studying the time variations in the series of elasticities of factor substitution, which in a sense manifests chang es in production technology and structure. A LKM translog cost functio n model is used to estimate the Allen-Uzawa elasticities of substituti on for Taiwan's manufacturing sector in 1965-91. The variations are an alysed using a regression model which incorporates the linear spline s etting and income variable. Empirical results indicate that obvious st ructural breaks in the elasticity series conform to major exogenous di sturbances such as worldwide energy crises and developmental policy ch anges.