Date of Award

Spring 1994

Project Type

Dissertation

Program or Major

Economics

Degree Name

Doctor of Philosophy

First Advisor

Evangelos O Shmos

Abstract

During the past two decades a system-wide approach to the analysis of multi-input, multi-output technology has been developed as the result of the application of the duality theory to the production and the development of the flexible functional forms. For empirical research, this system-wide approach has been widely applied to both industrial and national level economic problems. The industry applications usually work in the framework of a closed economy, failing to incorporate foreign trade flows, whereas the national economy applications attempt to consider only the primary factor inputs although foreign trade flows have been incorporated.

In this thesis the system-wide approach is applied to the U.S. automobile industry, avoiding the above mentioned limitations by the incorporation of both foreign trade flows and disaggregated factor inputs. A restricted profit function is defined to represent the technology of the U.S. automobile industry. In the output and variable input side, domestic sales, exports, imports and used automobiles are included; in the input side, labor, capital, materials, energy and business services are considered. By proper estimation of the model, the technology of the U.S. automobile production is comprehensively characterized. The substitutability relationships between the inputs and the outputs, between exports and imports, and between the foreign trade flows and the domestic factor inputs are all empirically revealed.

With heavy competition in both the domestic and international automobile markets, a comprehensive technological characterization of the automobile industry should consider the foreign sector as an integral part of the domestic industrial production. This thesis makes the first attempt to realize this combination and the empirical results are unique to the studies of the same line.

The major conclusions of this study can be summarized as follows. Firstly, the technology of the U.S. automobile production is certainly not separable between outputs and variable inputs on one hand and fixed factor inputs on the other hand. Secondly, the disembodied technological progress of the U.S. automobile production is apparently nonneutral. Thirdly, the various substitutability relationships found in this study demonstrate that the output for domestic sales is relatively business service intensive, while the output for exports is capital intensive. Lastly, an important policy implication derived from this thesis is that the import demand can effectively be curbed by using tariffs or some other protective trade policies due to the large absolute numerical value of the own-price elasticity of imports.

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