ABSTRACT
In the preceding chapter we have presented a theoretical model suitable for an underdeveloped economy of the Indian type. Our next task is to estimate the parameters of the various structural equations in the model. However, for statistical estimation we have to recast our model so as to make it amenable to the data available. For one thing, the system as it stands does not take into account dynamic considerations in the form of lags or expectations; but in statistical analysis concerned with the data of the real world, we have to take these into account. Similarly, it is difficult to define a wage-goods sector in practice. So for statistical purposes we have to divide the economy between agricultural and non-agricultural sectors—the agricultural sector being a close approximation to the wage-goods sector. Again, for the employment function in the non-agricultural sector, we have to take the output of food-grains rather than total agricultural output as the determining influence. Thus, while keeping the basic logic of the model intact, we have to modify our system of equations in a number of ways. It is these statistical problems that are considered in this chapter. In the first four sections (Sections 3.1 to 3.4) we consider in turn the statistical forms of production functions, employment functions, investment functions, and the functions for money, wages and prices. In Section 3.5 we introduce some equations which are required for closing the system. Then in Section 3.6 we put together these equations and consider the limitations of the model and compare it with other similar models. Lastly, in Section 3.7, we consider the statistical problems of the estimation of the parameters of the model.
