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Correcting For Biases When Estimating Production Functions: An Illusion Of The Laws Of Algebra?

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Author Info
Jesus Felipe ()
Rana Hasan ()
J. S. L. McCombie ()

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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://cama.anu.edu.au/Working%20Papers/Papers/2004/JesusFelipe132004.pdf
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Paper provided by Australian National University, Centre for Applied Macroeconomic Analysis in its series CAMA Working Papers with number 2004-13.

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Length: 23 pages
Date of creation: Nov 2004
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Handle: RePEc:acb:camaaa:2004-13

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  1. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  3. Fisher, Franklin M, 1971. "Aggregate Production Functions and the Explanation of Wages: A Simulation Experiment," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 305-25, November. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor and Francis Journals, vol. 19(3), pages 321-340. [Downloadable!] (restricted)
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  6. Simon, Herbert A, 1979. " On Parsimonious Explanations of Production Relations," Scandinavian Journal of Economics, Blackwell Publishing, vol. 81(4), pages 459-74.
  7. Lucas, Robert E, Jr, 1970. "Capacity, Overtime, and Empirical Production Functions," American Economic Review, American Economic Association, vol. 60(2), pages 23-27, May. [Downloadable!] (restricted)
  8. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
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  10. Barro, Robert J, 1999. " Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-37, June. [Downloadable!] (restricted)
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  11. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September. [Downloadable!] (restricted)
  12. Jesus Felipe & Franklin M. Fisher, 2003. "Aggregation in Production Functions: What Applied Economists should Know," Metroeconomica, Blackwell Publishing, vol. 54(2-3), pages 208-262, 05. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
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