| Data from the Bureau of Labor Statistics (BLS) for capital, labor, energy, materials, and business services (KLEMS) are used to estimate translog cost functions. Much of the work developing and testing production and cost functions has used the same Berndt and Wood (BW) data for total manufacturing. Results from the BLS are compared with the BW data and considerable differences found.;To improve the translog estimates the Kalman filter and state space form are used in an effort to permit the time proxy for technological change to follow a random walk with drift. The general state space form provides a unified structure that subsumes other models. After smoothing the Kalman filter model is equivalent to including time proxy.;An error-correction model or ECM is used to make the translog specification more dynamic. Nested within the most general ECM specification are the more restrictive static, partial adjustment, and autoregressive models. Likelihood ratio tests reject the more restricted models in favor of the general ECM specification, but theoretical symmetry and adding-up restrictions are rejected for most two-digit Standard Industrial Code industries using the general ECM specification. Elasticities are computed for total manufacturing and compared with those found in other studies with a special emphasis on energy. Many violations of the monotonic, own-price, and concavity theoretical requirements are found. |
