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Does Economic Freedom Affect The Production Frontier? A Semiparametric Approach With Panel Data

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  • Fan Zhang
  • Joshua Hall
  • Feng Yao

Abstract

This paper applies a multistep semiparametric stochastic production frontier estimator to investigate the effects of economic freedom (EF) on the production frontier and technical efficiency. We allow output elasticities and technical efficiency to depend on EF, estimate a smooth coefficient stochastic production frontier, and compare with parametric alternatives. Our results highlight the flexibility of semiparametric approaches as we find parametric approaches are too restrictive in estimating marginal productivity. Output elasticities of labor, human capital, and physical capital vary with the level of EF and our average efficiency estimates are at least 20% higher than those obtained from parametric counterparts. (JEL C14, O43)

Suggested Citation

  • Fan Zhang & Joshua Hall & Feng Yao, 2018. "Does Economic Freedom Affect The Production Frontier? A Semiparametric Approach With Panel Data," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1380-1395, April.
  • Handle: RePEc:bla:ecinqu:v:56:y:2018:i:2:p:1380-1395
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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