Economic Structural Analysis of the Canadian Agricultural Production Sector

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  • This study develops a model to analyze the changes in the Canadian agricultural production sectors over the period 1926 to 1988. Economic analysis is focused on the estimation of certain parameters including elasticities, scale effects of production and biases in technical change. Aggregate agricultural output is a function of labor, capital, intermediate goods, and land and building structures. The application of duality theory allows for the use of aggressive cost functions. Unlike earlier studies, a dynamic model of a system of share equations is fitted to the data. Selection of the model is based on tests of adequacy (statistical diagnostic tests) and of restrictions from underlying economic theory. Potential models include a static model (long-run equilibrium model), a partial adjustment model and an autoregressive process of order one for disturbances model, all of which are rejected. However, a system of share equations of a multivariate autoregressive process of order one of the translog functional form fits the data satisfactorily. One feature of the dynamic model utilized in this study is the ready availability of estimates of the long-run parameters. One significant difference between this study and earlier studies is the calculating of standard errors of estimates of elasticities, which are obtained using a statistical simulation procedure. Confidence intervals obtained for the estimates of elasticities are constructed using the simulated results. Most earlier studies either did not estimate standard errors or approximated them with standard error estimates of the coefficients, which are also used to calculate the elasticities; an approach which is faulty. The results of this study show that the long-run production structure for the Canadian agricultural sectors is non-homothetic. Scale of production is intermediate goods using and land saving. Labor and land and building structures, and intermediate goods and land and building structures are substitutes for Canada. All factors except land and building structures are inelastic to their own prices. Land and building structures appears to be elastic to its own price for Canada.

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    Attribution-NonCommercial-NoDerivatives 3.0 International