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THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.70, # 1, 2013, pp. 77-96 HE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.70, # 1, 2013, pp. 77-96

THE EVALUATION OF MUTUAL SUBSTITUTION ELASTICITY OF
CAPITAL AND LABOUR FACTORS BY APPLICATION OF CES
FUNCTION FOR ECONOMY OF AZERBAIJAN

Prof. Dr. Yadulla Hamdulla oglu Hasanli
Head of the Laboratory of Modeling of Social-Economic
Processes of the Institute of Cybernetics of
the Azerbaijan National Academy of Sciences,
E-mail: [email protected], [email protected], [email protected]

Received 11 January 2013; accepted 14 May 2013; published online 15 Jyul 2013

Abstract

This study estimates parameters of CES production function in a Mathcad

system using non-linear ordinary least squares method (Markvart method) based

on statistical data of republics of Azerbaijan and Kazakhstan. Identified parameter

estimates were comparatively analyzed to reveal a number of findings.

For both countries, capital-labour substitution elasticity () turned out less

than one, which indicates insufficiency of labour, namely qualified labour (skilled

labour) in both economies.

Azerbaijan have experienced windfall revenues from exploitation of natural

resources (particularly, crude oil) in recent years. These revenues induced greatly

the imports of capital-intensive products of sophisticated technologies, in other

words capital imports. Naturally, scarcity of adequate labour that could deploy

increased capital (skilled labour-intensive capital) resulted in decline of reciprocal

elasticity of capital-labour substitution. Thus, it can be concluded that utilization of
oil revenues to accumulate qualified labour (i.e. development of education,

science, etc., technical specializations) would increase reciprocal elasticity of
capital-labour substitution. Hence, expenditures on building qualified labour,

including spending on education and science are preferred areas of efficient use of

oil revenues.

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