Elasticity of Substitution in the Indian IndustriesAn Empirical Investigation

This diminutive paper examines the degree of elasticity of substitution between labor and capital across 127 Indian industries [Factory Sector] for the year 1999-2000 by fitting a Constant Elasticity of Substitution Production Function developed by SMAC. The empirical results that emerged out of the cross section data demonstrate that the estimate of the elasticity of substitution between labor and capital across the Indian industries is significantly positive and unity, implying that a 1% increase in the cost of labor leads to substitution of the labor by capital by 1% in the Indian industries.