IDEAS home Printed from https://ideas.repec.org/a/kap/jproda/v50y2018i3d10.1007_s11123-018-0538-6.html
   My bibliography  Save this article

Estimation of technical change and price elasticities: a categorical time–varying coefficient approach

Author

Listed:
  • Guohua Feng

    (University of North Texas)

  • Jiti Gao

    (Monash University)

  • Xiaohui Zhang

    (University of Exeter)

Abstract

We propose a categorical time-varying coefficient translog cost function, where each coefficient is expressed as a nonparametric function of a categorical time variable, thereby allowing each time period to have its own set of coefficients. Our application to U.S. electricity firms reveals that this model offers two major advantages over the traditional time trend representation of technical change: (1) it is capable of producing estimates of productivity growth that closely track those obtained using the Törnqvist approximation to the Divisia index; and (2) it can solve a well-known problem commonly referred to as “the problem of trending elasticities”.

Suggested Citation

  • Guohua Feng & Jiti Gao & Xiaohui Zhang, 2018. "Estimation of technical change and price elasticities: a categorical time–varying coefficient approach," Journal of Productivity Analysis, Springer, vol. 50(3), pages 117-138, December.
    • Handle: RePEc:kap:jproda:v:50:y:2018:i:3:d:10.1007_s11123-018-0538-6
    DOI: 10.1007/s11123-018-0538-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11123-018-0538-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11123-018-0538-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Melvyn A. Fuss, 1994. "Productivity Growth in Canadian Telecommunications," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 371-392, May.
    2. QI Li & Desheng Ouyang & Jeffrey S. Racine, 2013. "Categorical semiparametric varying‐coefficient models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(4), pages 551-579, June.
    3. Jiti Gao & Peter C.B. Phillips, 2013. "Functional Coefficient Nonstationary Regression with Non- and Semi-Parametric Cointegration," Monash Econometrics and Business Statistics Working Papers 16/13, Monash University, Department of Econometrics and Business Statistics.
    4. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    5. Henderson, Daniel J. & Kumbhakar, Subal C. & Li, Qi & Parmeter, Christopher F., 2015. "Smooth coefficient estimation of a seemingly unrelated regression," Journal of Econometrics, Elsevier, vol. 189(1), pages 148-162.
    6. Orbe, Susan & Ferreira, Eva & Rodriguez-Poo, Juan, 2003. "An algorithm to estimate time-varying parameter SURE models under different types of restriction," Computational Statistics & Data Analysis, Elsevier, vol. 42(3), pages 363-383, March.
    7. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 653-671, May.
    8. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-1384, December.
    9. Chen, Jia & Gao, Jiti & Li, Degui, 2012. "Semiparametric trending panel data models with cross-sectional dependence," Journal of Econometrics, Elsevier, vol. 171(1), pages 71-85.
    10. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
    11. Charles R. Hulten & Edwin R. Dean & Michael J. Harper, 2001. "New Developments in Productivity Analysis," NBER Books, National Bureau of Economic Research, Inc, number hult01-1, March.
    12. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    13. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 821-852.
    14. John Kwoka, 2008. "Restructuring the U.S. Electric Power Sector: A Review of Recent Studies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(3), pages 165-196, May.
    15. Atkinson, Scott E & Halvorsen, Robert, 1984. "Parametric Efficiency Tests, Economies of Scale, and Input Demand in U.S. Electric Power Generation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(3), pages 647-662, October.
    16. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    17. Baltagi, Badi H & Griffin, James M, 1988. "A General Index of Technical Change," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 20-41, February.
    18. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    19. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 249-283.
    20. BARTEN, Anton P., 1969. "Maximum likelihood estimation of a complete system of demand equations," LIDAM Reprints CORE 34, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    21. Dale W. Jorgenson, 1991. "Productivity and Economic Growth," NBER Chapters, in: Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, pages 19-118, National Bureau of Economic Research, Inc.
    22. Nakamura, Shinichiro, 1990. "A Nonhomothetic Generalized Leontief Cost Function Based on Pooled Data," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 649-656, November.
    23. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May.
    24. Li, Qi & Racine, Jeffrey S., 2010. "Smooth Varying-Coefficient Estimation And Inference For Qualitative And Quantitative Data," Econometric Theory, Cambridge University Press, vol. 26(6), pages 1607-1637, December.
    25. Kevin Fox, 1998. "Non-Parametric Estimation of Technical Progress," Journal of Productivity Analysis, Springer, vol. 10(3), pages 235-250, November.
    26. Clifford M. Hurvich & Jeffrey S. Simonoff & Chih‐Ling Tsai, 1998. "Smoothing parameter selection in nonparametric regression using an improved Akaike information criterion," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 60(2), pages 271-293.
    27. Zvi Griliches, 1998. "Productivity, R&D, and the Data Constraint," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 347-374, National Bureau of Economic Research, Inc.
    28. Rungsuriyawiboon, Supawat & Stefanou, Spiro E., 2007. "Dynamic Efficiency Estimation: An Application to U.S. Electric Utilities," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 226-238, April.
    29. Apostolos Serletis & Guohua Feng, 2015. "Imposing Theoretical Regularity on Flexible Functional Forms," Econometric Reviews, Taylor & Francis Journals, vol. 34(1-2), pages 198-227, February.
    30. Severin Borenstein & James Bushnell, 2015. "The US Electricity Industry After 20 Years of Restructuring," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 437-463, August.
    31. Gao, Jiti, 2007. "Nonlinear time series: semiparametric and nonparametric methods," MPRA Paper 39563, University Library of Munich, Germany, revised 01 Sep 2007.
    32. Laurits R. Christensen & Dale W. Jorgenson, 1970. "U.S. Real Product And Real Factor Input, 1929–1967," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 16(1), pages 19-50, March.
    33. Farrell, Lisa & Walker, Ian, 1999. "The welfare effects of lotto: evidence from the UK," Journal of Public Economics, Elsevier, vol. 72(1), pages 99-120, April.
    34. Gerald Granderson & Finn Forsund, 2014. "Rate of return regulation and the Le Chatelier principle," Journal of Productivity Analysis, Springer, vol. 41(2), pages 263-275, April.
    35. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    36. Jiti Gao & Peter C.B. Phillips, 2013. "Functional Coefficient Nonstationary Regression," Cowles Foundation Discussion Papers 1911, Cowles Foundation for Research in Economics, Yale University.
    37. Diewert, W E & Wales, T J, 1992. "Quadratic Spline Models for Producer's Supply and Demand Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 705-722, August.
    38. Gal Hochman & Deepak Rajagopal & David Zilberman, 2010. "Are Biofuels the Culprit? OPEC, Food, and Fuel," American Economic Review, American Economic Association, vol. 100(2), pages 183-187, May.
    39. Feng, Guohua & Serletis, Apostolos, 2008. "Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions," Journal of Econometrics, Elsevier, vol. 142(1), pages 281-311, January.
    40. Greene, William H., 1980. "On the estimation of a flexible frontier production model," Journal of Econometrics, Elsevier, vol. 13(1), pages 101-115, May.
    41. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    42. Chu, Chi-Yang & Henderson, Daniel J. & Parmeter, Christopher F., 2017. "On discrete Epanechnikov kernel functions," Computational Statistics & Data Analysis, Elsevier, vol. 116(C), pages 79-105.
    43. Charles R. Hulten, 2001. "Total Factor Productivity: A Short Biography," NBER Chapters, in: New Developments in Productivity Analysis, pages 1-54, National Bureau of Economic Research, Inc.
    44. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-676, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feng, Guohua & McLaren, Keith R. & Yang, Ou & Zhang, Xiaohui & Zhao, Xueyan, 2021. "The impact of environmental policy stringency on industrial productivity growth: A semi-parametric study of OECD countries," Energy Economics, Elsevier, vol. 100(C).
    2. Bernstein, David H. & Parmeter, Christopher F., 2019. "Returns to scale in electricity generation: Replicated and revisited," Energy Economics, Elsevier, vol. 82(C), pages 4-15.
    3. Feng, Guohua & Gao, Jiti & Peng, Bin & Zhang, Xiaohui, 2017. "A varying-coefficient panel data model with fixed effects: Theory and an application to US commercial banks," Journal of Econometrics, Elsevier, vol. 196(1), pages 68-82.
    4. Henderson, Daniel J. & Kumbhakar, Subal C. & Li, Qi & Parmeter, Christopher F., 2015. "Smooth coefficient estimation of a seemingly unrelated regression," Journal of Econometrics, Elsevier, vol. 189(1), pages 148-162.
    5. Hulten, Charles R., 2010. "Growth Accounting," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 987-1031, Elsevier.
    6. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    7. Massimo Del Gatto & Adriana Di Liberto & Carmelo Petraglia, 2011. "Measuring Productivity," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 952-1008, December.
    8. Apostolos Serletis, 2012. "Interfuel Substitution in the United States," World Scientific Book Chapters, in: Interfuel Substitution, chapter 2, pages 11-35, World Scientific Publishing Co. Pte. Ltd..
    9. Fedderke, J.W. & Bogetic, Z., 2009. "Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures," World Development, Elsevier, vol. 37(9), pages 1522-1539, September.
    10. Amir Jahan Khan, 2014. "The Comparative Efficiency of Public and Private Power Plants in Pakistan’s Electricity Industry," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(2), pages 1-26, July-Dec.
    11. Arteaga-Molina, Luis A. & Rodríguez-Poo, Juan M., 2019. "Empirical likelihood based inference for a categorical varying-coefficient panel data model with fixed effects," Journal of Multivariate Analysis, Elsevier, vol. 173(C), pages 110-124.
    12. Badi H. Baltagi & Georges Bresson & Jean-Michel Etienne, 2020. "Growth Empirics: a Bayesian Semiparametric Model With Random Coefficients for a Panel of OECD Countries," Advances in Econometrics, in: Essays in Honor of Cheng Hsiao, volume 41, pages 217-253, Emerald Group Publishing Limited.
    13. López-Pueyo, Carmen & Barcenilla-Visús, Sara & Sanaú, Jaime, 2008. "International R&D spillovers and manufacturing productivity: A panel data analysis," Structural Change and Economic Dynamics, Elsevier, vol. 19(2), pages 152-172, June.
    14. Feng, Guohua & Serletis, Apostolos, 2008. "Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions," Journal of Econometrics, Elsevier, vol. 142(1), pages 281-311, January.
    15. Zeljko Bogetic & Johannes Fedderke, 2005. "Infrastructure and Growth in South Africa: Benchmarking, Productivity and Investment Needs, paper presented at Economic Society of South Africa (ESSA) Conference, Durban, 9/7-9/2005," Public Economics 0510006, University Library of Munich, Germany.
    16. Ramos-Real, Francisco Javier, 2005. "Cost functions and the electric utility industry. A contribution to the debate on deregulation," Energy Policy, Elsevier, vol. 33(1), pages 69-87, January.
    17. Jiti Gao & Bin Peng & Zhao Ren & Xiaohui Zhang, 2015. "Variable Selection for a Categorical Varying-Coefficient Model with Identifications for Determinants of Body Mass Index," Monash Econometrics and Business Statistics Working Papers 21/15, Monash University, Department of Econometrics and Business Statistics.
    18. André A. Hofman & Patricio Valderrama, 2021. "Long Run Economic Growth Performance In Latin America – 1820–2016," Journal of Economic Surveys, Wiley Blackwell, vol. 35(3), pages 833-869, July.
    19. Subal C. Kumbhakar & Christopher F. Parmeter & Valentin Zelenyuk, 2022. "Stochastic Frontier Analysis: Foundations and Advances I," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 8, pages 331-370, Springer.
    20. Cockx, Bart & Ghirelli, Corinna, 2016. "Scars of recessions in a rigid labor market," Labour Economics, Elsevier, vol. 41(C), pages 162-176.

    More about this item

    Keywords

    Semiparametric Method; Categorical Time-varying Coefficient Model; Technical Change and Productivity;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jproda:v:50:y:2018:i:3:d:10.1007_s11123-018-0538-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.