The Impact of Capital Measurement Error Correction on Firm-Level Production Function Estimation

Lubomir Lizal and Kamil Galuscak

No wp1026, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Based on a large panel of Czech manufacturing firms, we estimate firm-level production functions in 2003–2007 using the Levinsohn and Petrin (2003) and Wooldridge (2009) approaches, correcting for the measurement error in capital. We show that measurement error plays a significant role in the size of the estimated capital coefficient. The capital coefficient estimate approximately doubles (depending on the particular industry) when we control for capital measurement error. Consequently, while the majority of industries exhibit constant or (in)significantly decreasing returns to scale when the standard methods are used, increasing returns cannot be rejected in some industries when the estimation is corrected for capital measurement error.

Keywords: Measurement error; capital; firm-level data; Czech Republic. (search for similar items in EconPapers)
JEL-codes: C23 C33 D24 O47 (search for similar items in EconPapers)
Pages: pages
Date: 2012-01-01
New Economics Papers: this item is included in nep-eff
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Impact of Capital Measurement Error Correction on Firm-Level Production Function Estimation (2011)
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