PRODUCTION FUNCTIONS FOR AUSTRALIAN MANUFACTURING INDUSTRIES.

This article focuses on the production functions for Australian manufacturing industries. The production function, being a technical relationship, might well be estimated in terms of technical rather than monetary measures of capital. This paper takes as its point of departure the Arrow, Chenery, Minhas, Solow (ACMS) time series estimation of the side relationship of the CES production function and proposes an energy measure of capital, namely, horsepower. Labour (L) should be a flow of labour services in constant efficiency units. The Secondary Industries Bulletin details number employed, including working proprietors. There are small problems concerning overtime, etc. which should be allowed for on a similar basis as the use of capital. If labour works at night, then so does capital. The series L in this paper is the number employed including working proprietors taken from the Secondary Industries Bulletin. Section II considers the data requirements and assumptions for the ACMS estimation and suggests that the original formulation of the relation may give biased estimates of the elasticity of substitution due to an autocorrelation problem arising from random errors of measurement in capital while section III considers a specification error analysis of a systematic misspecification of capital.