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Evaluating The Elasticity Of Substitution Between Capital And Labour (Both Skilled And Unskilled) In The Indian Manufacturing Sector

Author

Listed:
  • ARPIT GUPTA

    (Department of Economics, Indian Institute of Foreign Trade, New Delhi, India)

  • KASHIKA ARORA

    (Centre for WTO Studies, Indian Institute of Foreign Trade New Delhi, India)

Abstract

This study investigates the dynamics of the elasticity of substitution between capital and labour, both skilled and unskilled, across sixteen key industries in India's manufacturing sector. Employing a Constant Elasticity of Substitution (CES) production function and utilizing panel data spanning from 2001 to 2017, the research employs panel cointegration techniques to establish a long-term relationship between the variables. The study calculates long-run elasticity through FMOLS and DOLS estimators, revealing that in India's manufacturing sector, the elasticity of substitution between capital and skilled labour is higher compared to that between capital and unskilled labour, as consistently indicated by both estimators. These findings bear significant implications for industry-level resource allocation and labour market policies, suggesting a need for targeted strategies to enhance the integration and efficiency of skilled labour within the manufacturing sector.

Suggested Citation

  • Arpit Gupta & Kashika Arora, 2024. "Evaluating The Elasticity Of Substitution Between Capital And Labour (Both Skilled And Unskilled) In The Indian Manufacturing Sector," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 33, pages 81-102, June.
    • Handle: RePEc:aic:revebs:y:2024:j:33:guptaa
    DOI: 10.47743/rebs-2024-1-0004
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    More about this item

    Keywords

    Elasticity of substitution; Factor mobility; CES production function;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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