Flexible Functional Forms and Curvature Conditions: Parametric Productivity Estimation in Canadian and U.S. Manufacturing Industries

Jakir Hussain () and Jean-Thomas Bernard ()
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Jakir Hussain: University of Ottawa
Jean-Thomas Bernard: University of Ottawa

A chapter in Productivity and Inequality, 2018, pp 203-228 from Springer

Abstract: Abstract It is well-known that econometric productivity estimation using flexible functional forms often encounters violations of curvature conditions. However, the productivity literature does not provide any guidance on the selection of appropriate functional forms once they satisfy the theoretical regularity conditions. In this paper, we provide an empirical evidence that imposing local curvature conditions on the flexible functional forms affect total factor productivity (TFP) estimates in addition to the elasticity estimates. Moreover, we use this as a criterion for evaluating the performances of three widely used locally flexible cost functional forms—the translog (TL), the Generalized Leontief (GL), and the Normalized Quadratic (NQ)—in providing TFP estimates. Results suggest that the NQ model performs better than the other two functional forms in providing TFP estimates.

Keywords: Technical change; Productivity; Flexible functional forms; Translog (TL); Generalized Leontief (GL); Normalized Quadratic (NQ) cost function; Concavity; C22; F33 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-68678-3_10

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DOI: 10.1007/978-3-319-68678-3_10

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