ESTIMATING ELASTICITIES OF SUBSTITUTION BY THE CDE PRODUCTION FUNCTION - AN APPLICATION TO JAPANESE MANUFACTURING-INDUSTRIES

Using time-series data from Japanese manufacturing industries, the cap ital-skill complementarity hypothesis is tested by estimating elastici ties from a CDE production function. The first component of the hypoth esis, that capital and skilled labour are complements, receives little support in this analysis. The second component of the hypothesis, tha t capital is more complementary with skilled than with unskilled labou r likewise receives little support. Therefore, using the CDE productio n function, allowing for greater flexibility in the estimation of subs titution elasticities, results in little support for the capital-skill complementarity hypothesis.