Input Substitution in the Spanish Food Industry

Firm panel data sets over the period 1993 to 2002 are used to estimate translog production functions with labour, capital and material inputs for 9 Spanish food industries. To tackle the endogeneity of the regressors, the generalized method of moments estimations is employed. The specification tests reject the instrument variables only for 1 out of 9 estimates. The remaining 8 industries show evidence of homogeneity and constant returns to scale. Only one industry exhibits complete separability of all pairs of factors and thus translog is preferred to Cobb-Douglas specification for 7 industries. Substitutability and complementarity between production factors in response to price changes are studied through Morishima and Shadowelasticities. Substitutability between labor and capital and complementarity between labor and materials are the most common relationships.