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Estimation of the CES Production Function with Biased Technical Change: A Control Function Approach

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  • Xi CHEN

Abstract

In this paper, I extend the Olley-Pakes (1996) estimation method to the CES production function with biased technical change. The new semi-parametric approach allows consistent estimation of the degree of returns to scale, the elasticity of substitution, and the bias in technical change. Identification of these parameters is achieved under the assumption that the data generating process reflects not only technologies but also optimizing behavior of producers. Using data from U.S. manufacturing industries over the period 1958-2005, I find strong evidence that industries are characterized by a production technology with the elasticity of substitution below one and with significant biased technical progress.

Suggested Citation

  • Xi CHEN, 2012. "Estimation of the CES Production Function with Biased Technical Change: A Control Function Approach," Working Papers of BETA 2012-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2012-20
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    References listed on IDEAS

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    Cited by:

    1. Xi Chen & Bertrand M. Koebel, 2017. "Fixed Cost, Variable Cost, Markups and Returns to Scale," Annals of Economics and Statistics, GENES, issue 127, pages 61-94.

    More about this item

    Keywords

    Semi-parametric estimation; Panel data analysis; Returns to scale; Elasticity of substitution; Factor-augmenting technical change; Industry-level studies.;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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