Estimating Production Functions with Fixed Effects

Abito, Jose Miguel (2019): Estimating Production Functions with Fixed Effects.

Abstract

I propose an estimation procedure that can accommodate fixed effects in the widely used proxy variable approach to estimating production functions. The procedure allows unobserved productivity to have a permanent component in addition to a (nonlinear) Markov shock. The procedure does not rely on differencing out the fixed effect and thus is not restricted to within-firm variation for identification. Finally, the procedure is easy to implement as it only entails adding a two stage least squares step using internal instruments.

• Item Type: MPRA Paper
• Language: English
• Keywords: Production function, Estimation, Fixed Effects, Unobserved productivity, Proxy variables, Errors-in-Variables, Instrumental variables
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; L - Industrial Organization > L0 - General; L - Industrial Organization > L0 - General > L00 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

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