1. In other words, ∂(L(t)/y(t))/∂ΔK
p(t) = ∂(L(t)/y(t))/∂ΔK
r(t) = 0 at ΔK
p(t) = ΔK
r(t) = 0, which is easily seen to be the case in equation (7). We have also imposed the usual assumption that the adjustment costs of the two quasi-fixed factors (in this case P&E and R&D) are independent. See Morrison and Berndt (1981) and Pindyck and Rotemberg (1982b).
2. Clearly, the disturbances in the labor-output equation could also arise through measurement errors.
3. The one-tailed test of H
0: αdd = 0, H
A: αdd > 0 at the 90% level of confidence is 1.645.
4. The second order conditions were initially imposed by the procedure described in Lau (1974). With these estimates as initial conditions, we re-estimated the models without the imposition of the second order conditions. The convergence criteria we used was 0.001. In all cases convergence was achieved.
5. This point has been previously emphasized by Nadiri (1982).