Factor Substitution and Price Elasticity of Demand in Haryana Manufacturing Industries

In this paper an attempt has been made to analyze the substitution possibilities in Haryana manufacturing industries. The study derives its rationale primarily from the fact that the growth of manufacturing sector in Haryana is the need of the hour, as the agriculture growth appears to have already reached a plateau after enjoying a period of high growth in the wake of Green Revolution. The major objective of the study is to examine trends in substitution possibilities during the pre -and post-liberalization periods. The study relies mainly on data generated by Annual Survey of Industries and covers the period from 1981-82 to 2007-08. In the year 1991, economic policy underwent substantial changes and the year is treated as a watershed for dividing the entire policy regime into two phases. The results suggest limited substitution possibilities between labor and capital, and labor and energy, while strong substitution possibilities are suggested between capital and energy. The results suggest that the hypothesis of uniform elasticity of substitution for every pair of inputs over the two policy regimes holds only partially good. While the hypothesis is accepted for substitution elasticity between capital and energy, it is rejected for labor and capital as well as for labor and energy.