Factor substitution in Kenya is manufacturing sector
Abstract
In comparison to other development objectives in the LDCs, the promotion of employment is most important. This is in appreciation of its versatility; employment creation is the centre pole in alleviation of poverty, promotion of economic growth and improvement of the standards of living of the population.
The inter-relationship between employment and other development objectives is clearly reflected in these countries' development plans. The study is focused on the strategies of promoting employment growth.
An analysis of the employment and output growth rate pattern in the manufacturing sector reveals a divergence between the two; output has grown at an increasing rate while employment has grown at a declining rate. This forms the basis of the study.
To study these phenomena, we computed the elasticity of substitution among factor inputs between capital, labor and intermediate inputs. The major conclusion derived from the results is that factor proportions problem is not a major stumbling block in the manufacturing sector, employment is a function1of, among other variables the relative factor prices.
The robustness of the policy derived from the study is based on how well the data corresponds to theory. The study has attempted to verify some of the maintained hypotheses underlying the characteristics of the production technology. This leads to the conclusion that the cost function is non-homothetic and not well-behaved.
An interesting finding concerning the value added specification, is that the primary inputs are not weakly separable from intermediate inputs. Therefore, the validity of the value added specification to analyze the characteristics of the production technology is diminished.
To overcome some limitations of past studies the duality approach was utilized, and a flexible functional form; the trans-log cost function, was used. This function was fitted to cross-sectional data derived from Government publications.
Sponsorhip
University of NairobiPublisher
Department of Economics