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Correcting for biases when estimating production functions: an illusion of the laws of algebra?

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  • Jesus Felipe
  • Rana Hasan
  • J. S. L. McCombie

Abstract

this paper argues that the true cause of the endogeneity bias that allegedly appears when estimating production functions, and which the literature has tried to deal with since the 1940s, is s imply the result of omitted-variable bias due to an incorrect approximation to an accounting identity. As a result we question recent attempts to solve the problem by developing new estimators.

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File URL: http://hdl.handle.net/10.1093/cje/bem043
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Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 32 (2008)
Issue (Month): 3 (May)
Pages: 441-459

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Handle: RePEc:oup:cambje:v:32:y:2008:i:3:p:441-459

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  1. Shaikh, Anwar, 1974. "Laws of Production and Laws of Algebra: The Humbug Production Function," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 115-20, February.
  2. Simon, Herbert A, 1979. " On Parsimonious Explanations of Production Relations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(4), pages 459-74.
  3. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
  4. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  5. Samuelson, Paul A, 1979. "Paul Douglas's Measurement of Production Functions and Marginal Productivities," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 923-39, October.
  6. Wibe, Soren A, 1984. "Engineering Production Functions: A Survey," Economica, London School of Economics and Political Science, vol. 51(204), pages 401-11, November.
  7. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
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Cited by:
  1. Yu, Bingxin & Zhu, Tingju & Breisinger, Clemens & Hai, Nguyen Manh, 2010. "Impacts of climate change on agriculture and policy options for adaptation," IFPRI discussion papers 1015, International Food Policy Research Institute (IFPRI).
  2. Miaojie Yu, 2010. "Processing Trade, Firms Productivity, and Tariff Reductions : Evidence from Chinese Products," Trade Working Papers 22873, East Asian Bureau of Economic Research.
  3. Zhenyu Zhang & Karina Schoengold, 2011. "Carbon emissions control policies in China's power generation sector," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(3), pages 350-368, September.
  4. Jesus Felipe & John McCombie, 2012. "Aggregate Production Functions and the Accounting Identity Critique: Further Reflections on Temple's Criticisms and Misunderstandings," Economics Working Paper Archive wp_718, Levy Economics Institute.
  5. Estola, Matti & Dannenberg, Alia, 2012. "Testing the neo-classical and the Newtonian theory of production," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(24), pages 6519-6527.
  6. Yu, Bingxin & Zhu, Tingju & Breisinger, Clemens & Manh Hai, Nguyen, 2012. "Examine the Agriculture, Poverty, and Climate Change Nexus in Vietnam," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126876, International Association of Agricultural Economists.

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