Correcting for Biases When Estimating Production Functions: An Illusion of the Laws of Algebra?

Posted: 20 Jun 2008

See all articles by Jesus Felipe

Jesus Felipe

Asian Development Bank

Rana Hasan

Asian Development Bank; University of Maryland - Department of Economics

J. S. L. McCombie

affiliation not provided to SSRN

Date Written: May 2008

Abstract

This paper shows that the endogeneity bias that allegedly appears when estimating production functions using value data, and which the literature has tried to deal with since the 1940s, is simply the result of omitted-variable bias due to a poor approximation to an accounting identity. This problem has no econometric solution. As a result, recent attempts to solve the problem by developing new estimators are questioned. The only possible way to estimate the technological parameters of the production function is to use physical quantities.

Keywords: Accounting identity, Endogeneity, Omitted-variable bias, Production function

JEL Classification: C13, D24, O47

Suggested Citation

Felipe, Jesus and Hasan, Rana and McCombie, J. S. L., Correcting for Biases When Estimating Production Functions: An Illusion of the Laws of Algebra? (May 2008). Cambridge Journal of Economics, Vol. 32, Issue 3, pp. 441-459, 2008. Available at SSRN: https://ssrn.com/abstract=1148611 or http://dx.doi.org/10.1093/cje/bem043

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Rana Hasan

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
808-944-7590 (Phone)
808-944-7399 (Fax)

J. S. L. McCombie

affiliation not provided to SSRN

Register to save articles to
your library

Register

Paper statistics

Abstract Views
297
PlumX Metrics