Does Economic Freedom Affect The Production Frontier? A Semiparametric Approach With Panel Data

Fan Zhang, Joshua Hall and Feng Yao
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Fan Zhang: Ripon College, Business Management Program
Feng Yao: Shenzhen University, China Center for Special Economic Zone Research

No 17-27, Working Papers from Department of Economics, West Virginia University

Abstract: This paper applies a multi-step semiparametric stochastic production frontier estimator proposed by Yao et al. (2017) to investigate the effects of economic freedom on the production frontier and technical efficiency. We allow output elasticities and technical efficiency to depend on the economic freedom variable, estimate a smooth coefficient stochastic production frontier, and compare with parametric alternatives, the Cobb-Douglas and translog estimates. Our results add to the literature on economic freedom and growth in three ways. First, our results highlight the flexibility of semiparametric approaches as we find the commonly used parametric approaches to be too restrictive in estimating the marginal productivity of inputs. Second, we find that the output elasticities of labor, human capital, and physical capital vary with the level of economic freedom. Third, our average efficiency estimates are at least 20% higher than those obtained from the parametric counterparts, suggesting that previous papers have mismeasured the impact of economic freedom on technical efficiency.

Keywords: Economic freedom; Technical efficiency; Semiparametric smooth coefficient model (search for similar items in EconPapers)
JEL-codes: C14 O43 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-11
New Economics Papers: this item is included in nep-eff, nep-gro and nep-ore
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Journal Article: DOES ECONOMIC FREEDOM AFFECT THE PRODUCTION FRONTIER? A SEMIPARAMETRIC APPROACH WITH PANEL DATA (2018)
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