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Flexible Functional Forms and Curvature Conditions: Parametric Productivity Estimation in Canadian and U.S. Manufacturing Industries

In: Productivity and Inequality

Author

Listed:
  • Jakir Hussain

    (University of Ottawa)

  • Jean-Thomas Bernard

    (University of Ottawa)

Abstract

It is well-known that econometric productivity estimation using flexible functional forms often encounters violations of curvature conditions. However, the productivity literature does not provide any guidance on the selection of appropriate functional forms once they satisfy the theoretical regularity conditions. In this paper, we provide an empirical evidence that imposing local curvature conditions on the flexible functional forms affect total factor productivity (TFP) estimates in addition to the elasticity estimates. Moreover, we use this as a criterion for evaluating the performances of three widely used locally flexible cost functional forms—the translog (TL), the Generalized Leontief (GL), and the Normalized Quadratic (NQ)—in providing TFP estimates. Results suggest that the NQ model performs better than the other two functional forms in providing TFP estimates.

Suggested Citation

  • Jakir Hussain & Jean-Thomas Bernard, 2018. "Flexible Functional Forms and Curvature Conditions: Parametric Productivity Estimation in Canadian and U.S. Manufacturing Industries," Springer Proceedings in Business and Economics, in: William H. Greene & Lynda Khalaf & Paul Makdissi & Robin C. Sickles & Michael Veall & Marcel-Cristia (ed.), Productivity and Inequality, pages 203-228, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-68678-3_10
    DOI: 10.1007/978-3-319-68678-3_10
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    Cited by:

    1. Félix Modrego & Andrea Canales & Héctor Bahamonde, 2020. "Employment effects of COVID‐19 across Chilean regions: An application of the translog cost function," Regional Science Policy & Practice, Wiley Blackwell, vol. 12(6), pages 1151-1167, December.

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