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Flexible Functional Forms and Curvature Conditions: Parametric Productivity Estimation in Canadian and U.S. Manufacturing Industries

Author

Listed:
  • Jakir Hussain

    (Department of Economics, University of Ottawa, Ottawa, ON)

  • Jean-Thomas Bernard

    (Department of Economics, University of Ottawa, Ottawa, ON)

Abstract

It is well-known that econometric productivity estimation using flexible functional forms often encounter violations of curvature conditions. However, the productivity literature does not provide any guidance on the selection of appropriate functional forms once they satisfy the theoretical regularity conditions. In this paper, we provide an empirical evidence that imposing local curvature conditions on the flexible functional forms affect total factor productivity (TFP) estimates in addition to the elasticity estimates. Moreover, we use this as a criterion for evaluating the performances of three widely used locally flexible cost functional forms - the translog (TL), the Generalized Leontief (GL), and the Normalized Quadratic (NQ) - in providing TFP estimates. Results suggest that the NQ model performs better than the other two functional forms in providing TFP estimates.

Suggested Citation

  • Jakir Hussain & Jean-Thomas Bernard, 2016. "Flexible Functional Forms and Curvature Conditions: Parametric Productivity Estimation in Canadian and U.S. Manufacturing Industries," Working Papers 1612e, University of Ottawa, Department of Economics.
    • Handle: RePEc:ott:wpaper:1612e
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Technical change; Productivity; Flexible functional forms; Translog (TL); Generalized Leontief (GL); Normalized Quadratic (NQ); Cost function; Concavity;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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