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Modeling Regional Heterogeneity with Panel Data: Application to Spanish Provinces

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  • Alvarez, Antonio
  • del Corral, Julio

Abstract

The estimation of aggregate production functions is common in regional economics. Regional data are usually characterized by a high level of heterogeneity among observations which are not frequently reflected in the data. If this unobserved heterogeneity, is not treated adequately can arise serious econometric problems. In this paper we review the different approaches the literature has used to deal with this problem. Moreover, in order to compare different models we estimate aggregate production functions using data from Spanish regions. First we estimate the Cornwell, Schmidt and Sickles (1990) model. Furthermore, we estimate a Battese and Coelli (1995) model. We include a time trend as an efficiency explanatory variable so the efficiency is time varying. We compare both estimates with the traditional fixed effects model.

Suggested Citation

  • Alvarez, Antonio & del Corral, Julio, 2006. "Modeling Regional Heterogeneity with Panel Data: Application to Spanish Provinces," Efficiency Series Papers 2006/06, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    • Handle: RePEc:oeg:wpaper:2006/06
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    References listed on IDEAS

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