Estimating Production Functions in Differentiated-Product Industries with Quantity Information and External Instruments

Nicolás de Roux, Marcela Eslava, Santiago Franco () and Eric Verhoogen

No 18705, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: This paper develops a new method for estimating production-function parameters that can be applied in differentiated-product industries with endogenous quality and variety choice. We take advantage of data on physical quantities of outputs and inputs from the Colombian manufacturing survey, focusing on producers of rubber and plastic products. Assuming constant elasticities of substitution of outputs and inputs within fi rms, we aggregate from the fi rm-product to the firm level and show how quality and variety choices may bias standard estimators. Using real exchange rates and variation in the "bite" of the national minimum wage, we construct external instruments for materials and labor choices. We implement a simple two-step instrumental-variables method, fi rst estimating a difference equation to recover the materials and labor coeffcients and then estimating a levels equation to recover the capital coeffcient. Under the assumption that the instruments are uncorrelated with fi rms' quality and variety choices, this method yields consistent estimates, free of the quality and variety biases we have identif ed. Our point estimates differ from those of existing methods and changes in our preferred productivity estimator perform relatively well in predicting future export growth.

Keywords: production-function estimation; quality; variety; external instruments (search for similar items in EconPapers)
JEL-codes: D24 L1 L65 O14 (search for similar items in EconPapers)
Pages: 94
Date: 2021-01-26
New Economics Papers: this item is included in nep-eff and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://repositorio.uniandes.edu.co/bitstream/handle/1992/48081/dcede2021-02.pdf

Related works:
Working Paper: Estimating Production Functions in Differentiated-Product Industries with Quantity Information and External Instruments (2021)
Working Paper: Estimating Production Functions in Differentiated-Product Industries with Quantity Information and External Instruments (2021)
Working Paper: Estimating Production Functions in Differentiated-Product Industries with Quantity Information and External Instruments (2020)
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:col:000089:018705

Access Statistics for this paper

More papers in Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE Contact information at EDIRC.
Bibliographic data for series maintained by Universidad De Los Andes-Cede ().