TESTING DYNAMIC SPECIFICATION OF FACTOR DEMAND EQUATIONS FOR UNITED-STATES MANUFACTURING

This paper addresses the question of dynamic specification of empirical models of factor demand for annual U.S. manufacturing data from 1947 to 1981. Frequently used models which treat a subset of factors as variable are shown to be misspecified. An error-correction model is considered as an alternative specification. This model is shown to dominate several more parsimonious models in several respects. However, like the other models considered, the error-correction model is unable to generate satisfactory estimates of long-run elasticities. The issue of dynamic specification remains unresolved.