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CAPITAL-LABOUR SUBSTITUTION AND BANKING SECTOR PERFORMANCE IN NIGERIA (1960-2008)
This study examines productivity in the banking sector by way of estimating two major production functions known in the economic literature. The result obtained from the ordinary least square (OLS) estimates shows that substitution parameters α and β (substitution parameters for capital and labour, respectively) confirms the a priori expectation that the duo of α and β are positive values of less than one. The addition of the values of α and β is greater than one, which indicates that as the banking sector doubles its inputs in terms of capital and labour, the output in terms of deposit will be more than doubled. The substitution parameters in the Constant Elasticity of Substitution Production Function were equally positive, which supports the theory. The speed of adjustment for the two models are reasonably good as any deviation from equilibrium is to be adjusted back in the long run. In the final analysis, the study supports economic theory on the specification of both Cobb-Douglas and Constant Elasticity of Substitution production functions.
Key words: Productivity, Production Function, Cobb-Douglas, Constant Elasticity of Substitution, Cointegration.