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

Author

Listed:
  • Fan Zhang

    (Ripon College, Business Management Program)

  • Joshua Hall

    (West Virginia University, Department of Economics)

  • Feng Yao

    (Shenzhen University, China Center for Special Economic Zone Research)

Abstract

This paper applies a multi-step semiparametric stochastic production frontier estimator proposed by Yao et al. (2017) to investigate the effects of economic freedom on the production frontier and technical efficiency. We allow output elasticities and technical efficiency to depend on the economic freedom variable, estimate a smooth coefficient stochastic production frontier, and compare with parametric alternatives, the Cobb-Douglas and translog estimates. Our results add to the literature on economic freedom and growth in three ways. First, our results highlight the flexibility of semiparametric approaches as we find the commonly used parametric approaches to be too restrictive in estimating the marginal productivity of inputs. Second, we find that the output elasticities of labor, human capital, and physical capital vary with the level of economic freedom. Third, our average efficiency estimates are at least 20% higher than those obtained from the parametric counterparts, suggesting that previous papers have mismeasured the impact of economic freedom on technical efficiency.

Suggested Citation

  • Fan Zhang & Joshua Hall & Feng Yao, 2017. "Does Economic Freedom Affect The Production Frontier? A Semiparametric Approach With Panel Data," Working Papers 17-27, Department of Economics, West Virginia University.
  • Handle: RePEc:wvu:wpaper:17-27
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    References listed on IDEAS

    as
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    Cited by:

    1. Bergh, Andreas & Bjørnskov, Christian, 2019. "Does Economic Freedom Boost Growth for Everyone?," Working Paper Series 1276, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Economic freedom; Technical efficiency; Semiparametric smooth coefficient model;

    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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