Does Economic Freedom Affect the Production Frontier? A Semiparametric Approach with Panel Data

16 Pages Posted: 22 Feb 2018

See all articles by Fan Zhang

Fan Zhang

Ripon College

Joshua Hall

Kent State University - College of Business Administration

Feng Yao

West Virginia University

Date Written: April 2018

Abstract

This paper applies a multistep semiparametric stochastic production frontier estimator to investigate the effects of economic freedom (EF) on the production frontier and technical efficiency. We allow output elasticities and technical efficiency to depend on EF, estimate a smooth coefficient stochastic production frontier, and compare with parametric alternatives. Our results highlight the flexibility of semiparametric approaches as we find parametric approaches are too restrictive in estimating marginal productivity. Output elasticities of labor, human capital, and physical capital vary with the level of EF and our average efficiency estimates are at least 20% higher than those obtained from parametric counterparts.

JEL Classification: C14, O43

Suggested Citation

Zhang, Fan and Hall, Joshua and Yao, Feng, Does Economic Freedom Affect the Production Frontier? A Semiparametric Approach with Panel Data (April 2018). Economic Inquiry, Vol. 56, Issue 2, pp. 1380-1395, 2018, Available at SSRN: https://ssrn.com/abstract=3127913 or http://dx.doi.org/10.1111/ecin.12548

Fan Zhang (Contact Author)

Ripon College ( email )

300 Seward Street
Ripon, WI 54971
United States

Joshua Hall

Kent State University - College of Business Administration ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

Feng Yao

West Virginia University ( email )

PO Box 6025
Morgantown, WV 26506
United States

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