Substitution among Labour, Capital, Imported Raw Materials, and Bank Credit in Pakistan's Manufacturing

Ashfaque H. Khan, Mohammad Rafiq

Abstract


In view of its central importance to economic analysis a vast
number of studies relating to the production function in its various
functional forms has been undertaken during the last three decades in
both the developed and the developing countries. Studies pertaining of
the developing countries were primarily directed towards finding the
degree of substitution between labour and capital. These efforts were
ignited by the desire to explain the existence of high rates of
unemployment, particularly in the urban areas. It has been argued that
the near zero elasticity of substitution between labour and capital has
been responsible for the existence of the high rate of unemployment.l On
the other hand, higher values for the elasticity of substitution could
lead to the substitution of abundant or the faster growing factor of
production (labour) for the scarce or slow growing factor (capital).
Hence, a knowledge of the value of the elasticity of substitution
between labour and capital in the manufacturing sector is essential for
understanding the growing unemployment problem in developing countries,
including Pakistan.

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DOI: https://doi.org/10.30541/v32i4IIpp.1259-1266

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