Page 85 - Azerbaijan State University of Economics

Yadulla H. Hasanli: The evaluation of mutual substitution elasticity of capital and labour
factors by application of CES function for economy of Azerbaijan

The theoretical aspects of evaluation of parameters of CES function.

Markward method.

The CES function even after logarithmation remains not-linear. Therefore in

order to evaluate the parameters of CES function, we should apply the least square

method.

In general non-linear the least square method is presented in following way:

Let’s guess that the variable Y is non-linear function showing the

dependence of the last on on variables X 1, X 2 ,...., X n.

Y = F (X 1, X 2 ,...., X n )

However the parameters a 1, a 2 ,...., a n of variable X 1, X 2 ,...., X n respectively

are unknown. Here, a i – is parameter showing how variable X i can affect the

variable Y. The valuation of this parameter is required. For this purpose we have

performed m times observation. As a result of observations we have identified

respective variable (X i1, X i2 ,...., X in ) (i=1,2,...,m) for each variable Y i.

In other words,

Y i = F i (a 1, a 2 ,...., a n; X i1, X i2 ,...., X in )+ U i, i= m,1 , (3)

Here, U i –is deviation. In (3) a 1, a 2 ,...., a n we should find such parameters, that the

values obtained during the observation were maximum close to these obtain in the

theory. In other words, deviation U i should be at lowest point. The parameters a 1,

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