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Estimating Production Functions with Fixed Effects

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  • Abito, Jose Miguel

Abstract

I propose an estimation procedure that can accommodate fixed effects in the widely used proxy variable approach to estimating production functions. The procedure allows unobserved productivity to have a permanent component in addition to a (nonlinear) Markov shock. The procedure does not rely on differencing out the fixed effect and thus is not restricted to within-firm variation for identification. Finally, the procedure is easy to implement as it only entails adding a two stage least squares step using internal instruments.

Suggested Citation

  • Abito, Jose Miguel, 2019. "Estimating Production Functions with Fixed Effects," MPRA Paper 97825, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:97825
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    References listed on IDEAS

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    More about this item

    Keywords

    Production function; Estimation; Fixed Effects; Unobserved productivity; Proxy variables; Errors-in-Variables; Instrumental variables;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • L0 - Industrial Organization - - General
    • L00 - Industrial Organization - - General - - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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