Factor substitution, and economies of scale and utilisation in Kuwait's crude oil industry

The cost structure of the crude oil industry in Kuwait has been examined, with specific focus on factor substitution, and economies of scale and utilisation. This has been done by estimating translog cost functions, both long-run and short-run, using time-series data covering the period from 1976 to 1996. The results indicate that the implied production structure is non-homothetic, and the pattern of scale effect is tabour saving, but capital and material using. The evidence also supports the presence of an induced exogenous technical change, which is non-neutral (tabour and capital using, and material saving). The elasticity of substitution between capital and tabour is positive, implying that the two inputs are substitute. The results also indicate the existence of diseconomies of scale in the production of crude oil, but no economics or diseconomies of utilisation. (C) 2002 Elsevier Science B.V. All rights reserved.