ESTIMATED SUBSTITUTION ELASTICITIES OF A NESTED CES PRODUCTION FUNCTION-APPROACH FOR GERMANY

This paper demonstrates an econometric estimation of substitution elas ticities of a nested constant elasticity of substitution production fu nction (CES) between capital, energy and labour for the West German in dustry. In the last few years CES production functions have become mor e important in economic modelling, especially for applied general equi librium models where CES production functions are an important buildin g stone. In the literature, different results of estimated elasticitie s can be found. This paper investigates three different approaches for nested CES production functions and their estimated substitution elas ticities. Capital, energy and labour are estimated as substitutes for the West German industry in the long run. (C) 1998 Elsevier Science B. V.