- In this study, the rates of technological change in food processing sectors of U.S. and Mexico are compared through econometric estimation of both the unrestricted (long-run) and restricted (short-run) profit functions with first order autocorrelation correction. Then, the dual rate of productivity growth is computed and decomposed into its sources. The impact of environmental regulations on productivity growth is also analyzed through incorporation of a pollution abatement variable into empirical models.
The hypothesis testing results on the existence of short-run equilibrium in capital
markets indicated that the restricted profit function framework is the valid specification
for the underlying production technologies of U.S. and Mexican food sectors during the
sample period, and hence, our conclusions are based on restricted profit function models.
Our results suggest that, in U.S., the average annual dual rate of technological change
dropped from 0.76% during 1963-73 to 0.67% during 1974-88, increased to 0.72%
between 1988-1990, and declined to 0.65% during 1990-93. In Mexico, the dual rate of
technological change was sharply declining during most of the years of sample period,
and the average annual rate dropped from 1.30% during 1971-74 to 0.01% between
1989-93. The dual rate of technological change was lower in U.S. than in Mexico during
1971-81 period, but the difference (dual technological change gap) was sharply declining. Starting from 1982, the dual rate of technological change became greater in U.S. than in Mexico and the difference was continuously increasing. Moreover, the decomposition of dual productivity growth into its sources reveals that technological change was the main source of productivity growth in both countries, although in Mexico, the effects of changes in output price on productivity growth outweighed the contributions of technological change during several years between 1982-94. The impact of capacity utilization had a minor impact on productivity growth in both countries.
The estimated elasticities of input demand and output supply indicated that labor demand is price inelastic, while material demand and output supply are price elastic in both countries. The own price elasticity of material and output was higher in Mexico than in U.S. In both countries, input demands are affected most significantly by output prices, while output supply is most significantly affected by its own price. The estimates for elasticity of substitution between labor and material imply that labor and material are complement of each other in both countries, with the degree of substitution between them is higher in Mexico than in U.S.
Finally, the estimated parameters corresponding to pollution abatement variable suggested that pollution abatement costs had no significant impact on the U.S. dual rate of technological change, and in turn, productivity growth rate, and this appears to be consistent with the fact that the share of pollution abatement costs is quite small in U.S. food processing sector. For the Mexico, the estimated parameters were individually significant, implying that one unit increase in pollution abatement variable reduced the dual rate of technological change by around 0.11% points during 1982-94 period.