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Working Paper
Estimating the long-run user cost elasticity for a small open economy: evidence using data from South Africa
This paper estimates the long run elasticity of the demand for fixed nonresidential capital (both equipment and structures) to changes in its user cost using a quarterly panel of two-digit manufacturing data from South Africa from 1970 to 2001. Using a difference specification that does not rely on cointegration, we find highly significant estimates of the user cost elasticity on the order of -0.80. These estimates contrast sharply with many previous studies that obtained small and/or statistically insignificant estimates of the user cost elasticity using U.S. data. This discrepancy may owe ...