Estimating Production Functions with R&D Investment and Endogeneity
AbstractThis study analyses the production function estimation when there is an unobservable idiosyncratic productivity shock and the series of the productivity shock follows a first-order endogenous Markov process which is controlled by R&D investment. The production function approach, in general, suffers from endogeneity problems when there are determinants of production which are not observed by the econometrician but are observed by the manager of a firm. To control for this problem, recently developed econometric methods are applied to the production function estimation. The results show that there is a possibility that other estimation methods such as OLS estimation and fixed effect estimation underestimates the contribution of capital. The results also suggest that the rate of return to R&D varies considerably across industries and within an industry.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d07-229.
Date of creation: Dec 2007
Date of revision:
Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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