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Web of Proceedings - Francis Academic Press
Web of Proceedings - Francis Academic Press

Capital-Labor Substitution or Complementarity? -Time-Varying Elasticity Estimation from the Perspective of Appropriate Technology Selection in China

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DOI: 10.25236/iceesr.2021.129


Yueling Zhang

Corresponding Author

Yueling Zhang


From the perspective of China’s appropriate technology selection to understand the essence of substitution between factors, this paper estimates the time-varying elasticity series of capital-labor substitution by employing the stochastic frontier translog production function model, and then captures its evolution trajectory. Results show that in the sample period, the time-varying elasticity of capital-labor substitution in China tends to mutual substitution yet fluctuates sharply, even jumps from absolute complementarity to strong substitution directly, which means there exists drastic adjustment of factor combination or technical structure. This paper will play an important role in promoting the estimation of time-varying substitution elasticity, expanding the research of biased technological progress, deepening the analysis of income distribution and skill premium, and evaluating macroeconomic policies.


Elasticity of Substitution, Translog production function, Appropriate technology selection, Stochastic frontier analysis (SFA)