ADJUSTMENT COSTS, PRODUCTION-FUNCTIONS AND CAPITAL LABOR SUBSTITUTION IN GREEK MANUFACTURING - 1958-80

Treating adjustment costs as part of the decision-maker's objective function, a differential system of factor demand equations is derived and estimated jointly with a CES production function using data for Greek manufacturing. Estimates of production function parameters and adjustment cost functions are thus obtained. The results show that; the elasticity of substitution between capital and labour is slightly higher than one; increasing or constant returns to scale exist for most manufacturing branches; there is considerable technical progress of around 4%; adjustment costs due to investment and employment changes are responsible for an annual loss of 8.54% of output, whereas labour seems to be used inefficiently in Greek manufacturing. © 1991, Taylor & Francis Group, LLC. All rights reserved.