Production Structure, Technological Change and Scale Economies in the Saw and Planing Mills Industry in New Brunswick, Canada

The translog cost function approach is employed to characterize the production structure and to estimate the rate of technical change and technical bias in the saw and planing mills industry (SPM) in the New Brunswick Province. The findings are that the production structure of the saw and planing mills in Canada is neither homothetic nor homogenous implying potential scale induced distortion in the input mix. Morishma elasticity of substitution estimates show that in the existing technology of the saw and planing mills in New Brunswick, labor can more easily be substituted by capital than capital by labor. Moreover, the amount of round wood that is required to complement labor is higher than that required to complement energy and capital, which indicates that a labor intensive technology choice in the SPM industry is more round wood consuming than the capital and energy intensive technologies. These results coupled with the increasingly stringent environmental regulations indicate that the relative use of labor compared to other inputs is likely to decline in the saw and planing mills industry. Hence, in view of their cost minimizing behavior, the saw and planing mills in New Brunswick will sooner or latter start to replace labor with energy or capital. The saw and planing mills in New Brunswick exhibited fairly high economies of scale during the period 1965-1995, but the rate of technical change has been found to be negative.