Structural Identification of Productivity under Biased Technological Change∗

Laurens Cherchye, Thomas Demuynck, Bram De Rock, Cédric Duprez, Glenn Magerman (glenn.magerman@ulb.be) and Marijn Verschelde

No 2021-28, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: We propose a novel method for structural production analysis in the presence of unobserved heterogeneity in productivity. Our approach is intrinsically nonparametric and does not require the stringent assumption of Hicks neutrality. We assume cost minimization as the firms’ behavioral objective, and we model productivity on which firms condition the input demand. Our model can equivalently be represented in terms of endogenously chosen latent input costs, which avoids an endogeneity bias in a natural way. Our empirical application to unique and detailed Belgian manufacturing data shows that our method allows for drawing strong and robust conclusions, despite its nonparametric orientation. For example, we confirm the well-documented productivity slowdown, and we highlight a potential bias when using a common-scale intermediate inputs price deflator in the estimation of productivity. In addition, we provide robust empirical evidence against the assumption of Hicks neutrality for the setting at hand.

Keywords: productivity; unobserved heterogeneity; simultaneity bias; nonparametric production analysis; cost minimisation; manufacturing (search for similar items in EconPapers)
Pages: 43 p.
Date: 2021-12
New Economics Papers: this item is included in nep-ecm and nep-eff
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Citations: View citations in EconPapers (2)

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