Assessing the effectos of measurement errors on the estimation of the production function
AbstractThis article explores the reasons why GMM estimators of production function parameters are generally found to produce unsatisfactory results. I attribute this finding to the inaccurate construction of the variables used in production function analysis. In particular, I suggest that the problem lies in the use of common price deflators as well as in a capital variable that does not reflect the true flow of capital services because of short-run equilibrium effects. I show that the practice of using industry-wide deflators leads to lower scale estimates, mainly due to a relevant downward bias in the labour coefficient. At the same time, it introduces a large upward bias in estimating the elasticity of output with respect to technological innovation. Moreover, a significant improvement in the estimates of capital coefficients is obtained if the information on the degree of capacity utilization is adequately exploited.
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- Carmine Ornaghi, 2002.
"Spillovers In Product And Process Innovation: Evidence From Manufacturing Firms,"
Economics Working Papers
we023213, Universidad Carlos III, Departamento de Economía.
- Ornaghi, Carmine, 2006. "Spillovers in product and process innovation: Evidence from manufacturing firms," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 349-380, March.
- Ornaghi, Carmine, . "Spillovers in product and process innovation: evidence from manufacturing firms," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/274, Universidad Carlos III de Madrid.
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