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Scale properties and input substitution in mexican electrical equipment manufacturing

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  • Dale Truett
  • Lila Truett

Abstract

This paper investigates the existence of scale economies in the Mexican electrical equipment industry and estimates direct and cross price input demand elasticities using a translog cost function. Although the estimated value of the cost elasticity was consistent with economies of scale, it was significantly less than 1 only at a significance level slightly greater than 5 percent. The estimated cross price elasticities indicated that all of the inputs were substitutes. Nevertheless, while lower trade barriers under the North American Free Trade Agreement, ceteris paribus, may have a short-term adverse effect on the demand for labor in this industry by increasing imports of cheaper capital and intermediate goods, the relatively low values for E LK and E LM also support the conclusion that the impact on employment may be relatively small. Copyright International Atlantic Economic Society 1998

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  • Dale Truett & Lila Truett, 1998. "Scale properties and input substitution in mexican electrical equipment manufacturing," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 4(1), pages 70-82, February.
    • Handle: RePEc:kap:iaecre:v:4:y:1998:i:1:p:70-82:10.1007/bf02295237
    DOI: 10.1007/BF02295237
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