MSU Agricultural, Food, and Resource Economics
Dissertations, Theses and Plan B Papers -- Abstract
, Shunji. Effects of Output Changes on Factor Demand in Japanese Agriculture: A Flexible Dynamic Cost Function Approach
Major Professor: Myers.
Agricultural production in Japan is anticipated to contract due to import liberalization
and this output reduction will change input use for the production, such as labor
and chemicals. This study explores effects of changes in output on factor demand
through estimation of the factor demand equations and simulation of factor adjustment.
In Japanese agriculture, factors are not likely to be adjusted instantaneously
to their equilibrium levels due to high costs of adjustment, habits and customs,
and time lags in the transmission of information. As a result, this study applies
an error correction model based on share equations derived from a translog cost
function. The model maintains the flexible properties of a translog function
but also permits short-run disequilibrium. Estimation of the dynamic model shows
that output elasticity of labor demand is greater than unity, while the elasticities
of chemical and capital use are less than unity. It implies that, in the long-run,
average use of chemicals per unit of output increases, and the labor required
to produce a unit of output declines.
In order to incorporate the effects of changes in factor prices into the analysis
of output effects, a short-term factor adjustment process is simulated. Simulation
of long-run equilibrium adjustment of factor use shows that chemical use will
decline little, while labor declines greatly. Simulation using the dynamic
model of factor share adjustment also shows that shares of chemical and capital
increase, while the share of labor declines. These results generally consistent
with earlier findings on output elasticities.