Estimating Production Functions with Fixed Effects

Jose Miguel Abito

MPRA Paper from University Library of Munich, Germany

Abstract: I propose an estimation procedure that can accommodate fixed effects in the widely used proxy variable approach to estimating production functions. The procedure allows unobserved productivity to have a permanent component in addition to a (nonlinear) Markov shock. The procedure does not rely on differencing out the fixed effect and thus is not restricted to within-firm variation for identification. Finally, the procedure is easy to implement as it only entails adding a two stage least squares step using internal instruments.

Keywords: Production function; Estimation; Fixed Effects; Unobserved productivity; Proxy variables; Errors-in-Variables; Instrumental variables (search for similar items in EconPapers)
JEL-codes: C0 C01 L0 L00 O4 (search for similar items in EconPapers)
Date: 2019-12-24
New Economics Papers: this item is included in nep-ecm and nep-eff
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:97825

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