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Estimation of firm productivity in the presence of spillovers and common shocks

Author

Listed:
  • Shunan Zhao

    (Oakland University)

  • Man Jin

    (Oakland University)

  • Subal C. Kumbhakar

    (State University of New York
    University of Stavanger, Business School)

Abstract

Productivity is largely estimated ignoring the potential impact of spillovers and common shocks in the literature, and therefore, the estimates may be subject to the omitted variable bias and internal inconsistency. In this paper, we estimate a nonparametric production function, in which technology spillovers and common shocks have persistent effects on productivity and are controlled for through spatial networks and a factor structure in the productivity evolution process. We synthesize the proxy variable method to structurally identifying the production functions using the semiparametric common correlated effect estimator. The proposed model is then applied to the Chinese computer and peripheral equipment firms. We find that the annual productivity growth rate in this high-technology sector is about 15%. While firms are cross-sectionally dependent via both spatial and non-spatial connections, the productivity growth is largely explained by firms’ own effort, and mildly explained by the neighbors’ activities. Productivity is found to be higher in the areas of agglomeration, and the common shock effects on productivity are not necessarily correlated with the spatial variables.

Suggested Citation

  • Shunan Zhao & Man Jin & Subal C. Kumbhakar, 2021. "Estimation of firm productivity in the presence of spillovers and common shocks," Empirical Economics, Springer, vol. 60(6), pages 3135-3170, June.
  • Handle: RePEc:spr:empeco:v:60:y:2021:i:6:d:10.1007_s00181-020-01922-3
    DOI: 10.1007/s00181-020-01922-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Productivity; Technology spillover; Cross-sectional dependence; Agglomeration; Chinese computer and peripheral equipment firms;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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