The Structure of Production and Investment in Australia's Pastoral Zone
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This paper develops a dynamic optimal intertemporal investment model under the adjustment cost
hypothesis to analyse the structure of production and investment in Australia's pastoral zone. The
dynamic model is applied to pooled cross-sectional and time-series data obtained from ABARE farm
surveys for the period 1979 through to 1993. Empirical results provide strong statistical evidence to
indicate that quasi-fixity of inputs of labour, capital, sheep numbers and cattle numbers are characteristic
of the agricultural sector in the pastoral zone. The results reveal that it takes about two years for labour,
a little over three years of capital, a little over two years for sheep flock inventory and cattle herd inventory
to adjust toward their long-run optimal levels. Results indicate substitution between labour-capital and
sheep-cattle input pairs. The results also indicate that output supply and input demand responses are price
inelastic in both the short and long run.