Foreign trade and domestic policy regimes often alter relative primary
factor prices. Subsidized credit, differential import taxes that favor capital
goods imports, and minimum wages are a few examples. The effect of
these policies on the demand for labor and for other primary factors
depends critically on the degree of technical substitution among production
inputs. A hypothesis frequently maintained (though not always
explicitly stated) is that elasticities of substitution between capital and
labor are zero. The purpose of this chapter is to test to what extent this
and some related hypotheses about the underlying production relations
are consistent with empirical realities.