FACTOR SUBSTITUTION AND ADAPTATION IN THE 'OFF-SHORE' ASSEMBLY PLANTS OF BAJA CALIFORNIA .

Off-shore assembly plant operations have become an increasingly important source of jobs and foreign exchange for some developing countries. This paper, using cross-section data of individual assembly plants in Baja California, examines factor substitution and adaptation taking place in this labor-intensive type of operation. For contrast the technologically advanced electronic industry and the more traditional apparel assembly industry are compared. A two level CES production function which treats skilled labor as a separate factor of production is used to estimate elasticities of substitution. The study found evidence of factor adaptation occurring. Estimates of elasticities of substitution, while refuting the hypothesis of zero elasticity, are generally inelastic. This suggests that policies affecting wages of unskilled labor relative to skilled labor and capital can increase employment, but would decrease unskilled labor's total share of income. [ABSTRACT FROM AUTHOR]