Production structure, factor substitution, technical change, and total factor productivity in the Canadian logging industry

The production structure of the Canadian logging industry is studied using duality theory in production and costs. An unrestricted translog cost function and nine restricted cost functions are each estimated simultaneously with the cost share equations using the Iterative Zellner method. The Allen and Morishima elasticities of substitution among pairs of inputs and price elasticities of factor demands are computed. The difference between the rate of technical change and the total factor productivity is discussed, and both are calculated. Finally, an average cost equation is calculated and the impacts of factor prices are determined. The results indicate that the production structure is homogeneous, but it is not subject to the unitary elasticity of substitution, Hickis neutral technical change, or no technical change. The Morishima elasticities indicate that the substitution of capital by labour or energy is easier than the substitution of labour or energy by capital. Substantial economies of scale are observed in the logging cost. In the rate of technical change, the acceleration term dominates the input factors contribution, and the rate of technical change is negative in all the years. In the total factor productivity growth, in most of the years, the rate of technical change dominates the scale effect. Average cost is the most sensitive to material price followed by labour price, and the least sensitive to energy price.