Factor substitution and productivity in New Zealand

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Daan Steenkamp
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Steenkamp, Daan (2018). ‘Factor substitution and productivity in New Zealand’, The Economic Record, Wiley, Volume 94(304), Pages 64-79, DOI: https://doi.org/10.1111/1475-4932.12372.


This paper produces aggregate and industry estimates of Total Factor Productivity (TFP) for New Zealand. TFP is estimated based on Constant Elasticity of Substitution (CES) production functions that permit varying assumptions about factor augmentation and that allow for industry-specific values of the elasticity of substitution between inputs. The CES approach simultaneously explains changes in labour share and output over time, and provides estimates of the contribution of capital and labour to productivity in New Zealand. The results suggest that negative capital-augmenting technical change in several industries has weighed on productivity in New Zealand.