ABSTRACT
The decision to estimate the production function directly and constrain the parameters of the factor demand equations accordingly raises a difficult issue. The issue of which factor demand equation to use to obtain the implicit production function parameters was resolved by R. M. Coen and B. G. Hickman by simply choosing the one that produced the most reasonable estimates. An iterative estimation procedure that simultaneously determines the production function parameters and the regional capacity utilization rates is developed to cope with these problems. Special attention is given to the problems of directly estimating production relations. The latter constraint is required because over the sample period some fast growing states managed to increase the size of their manufacturing sectors fivefold. Joint estimation of all of the relevant functions using a simultaneous equation estimation procedure with appropriate parameter restrictions is one way of accounting for the interdependence among the parameters.
