What can we learn from industry-level (aggregate) production functions?

Ben Filewod

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Recent work has revived two intertwined challenges to aggregate production functions (the ‘identity’ and ‘aggregation’ problems). This paper examines both problems in the context of aggregate industryby- country analysis, first demonstrating the relevance of the identity problem for industry-level analysis and tracing its origin in the System of National Accounts. Using a case study of materials quality in global forestry and logging, the paper then compares estimates from fully physical versus conventional (monetary) production functions to isolate the aggregation problem and show that credible inference depends on appropriately modelling heterogeneity in production processes. Materials quality is measured via finite mixture modelling applied to global satellite data. Attempting to estimate the parameters of a common production technology yields poor results, because of differences in production processes between countries. The paper offers a practical approach for dealing with heterogeneity via Data Envelopment Analysis and heterogeneous coefficient panel estimators, and concludes with guidance to help applied industry-level analysis recognize and avoid both the identity and aggregation problems.

Keywords: data envelopment analysis; aggregation; value-added identity; sector; input quality; production functions (search for similar items in EconPapers)
JEL-codes: C43 E23 L73 Q23 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2024-04-09
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Applied Economics, 9, April, 2024. ISSN: 0003-6846

Downloads: (external link)
http://eprints.lse.ac.uk/122388/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:122388

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().