STRUCTURAL CHANGE IN FINNISH MANUFACTURING: THE THEORY OF THE AGGREGATION OF PRODUCTION FUNCTIONS AND AN EMPIRICAL ANALYSIS WITH A PLANT-LEVEL PANEL
11.02.2010
Labour Institute for Economic Research. Discussion Papers no. 258
Sauramo, Pekka - Maliranta, Mika
Abstract:In the paper, structural change in the Finnish manufacturing industries is studied by means of the theory of the aggregation of production functions and longitudinal plant-level data for the period from 1980 until 2005. The nature of structural change in twelve industries is characterised by examination of the invariance of the aggregate production functions over time. Aggregate production functions need not be stimated
because, according to the theory of the aggregation of production functions, the invariance can be analysed by the investigation of the stability of the capacity density functions which describe the distribution of value added in the industries. Even though the shapes of aggregate production functions alter over time in most industries, there are differences in timing and in the degree of turbulence across industries. The analysis confirms the result obtained earlier that in some industries, for example in the paper industry, the late 1980s marked the beginning of a period of relatively strong structural change. The food industry and the manufacture of communications equipment are examples of industries in which the 1990s was a period of turbulence.
