On Estimation of Deep Nested CES Production Functions

63 Pages Posted: 3 Oct 2018

See all articles by Haoqi Qian

Haoqi Qian

Fudan University, School of Economics

Libo Wu

Fudan University - School of Economics

Jianqing Fan

Princeton University - Bendheim Center for Finance

Date Written: July 22, 2018

Abstract

The constant elasticity of substitution (CES) function is an important function that is widely used in both theoretical analysis and applied economics. We propose a systematic framework to estimate the deep nested CES function using the nonlinear least squares (NLS) method. This method fills the gap between current empirical studies and large-scale applied economic models such as computable general equilibrium (CGE) models. We estimate the elasticities of substitution at both the regional and sectoral levels using this framework. The results indicate that some elasticities of substitution are larger than those in the existing literature. In addition, our results emphasize the heterogeneity of the elasticities of substitution across regions and sectors during application.

Keywords: Nested CES Function, Nonlinear Least Squares Estimation, Gradient Descent, Energy Substitution, Model Selection

JEL Classification: C13, C18, C52, Q43

Suggested Citation

Qian, Haoqi and Wu, Libo and Fan, Jianqing, On Estimation of Deep Nested CES Production Functions (July 22, 2018). Available at SSRN: https://ssrn.com/abstract=3247693 or http://dx.doi.org/10.2139/ssrn.3247693

Haoqi Qian

Fudan University, School of Economics ( email )

No.220, Handan Rd, Yangpu District
Shanghai, 200433
China

Libo Wu (Contact Author)

Fudan University - School of Economics ( email )

Shanghai
China

Jianqing Fan

Princeton University - Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States
609-258-7924 (Phone)
609-258-8551 (Fax)

HOME PAGE: http://orfe.princeton.edu/~jqfan/

Register to save articles to
your library

Register

Paper statistics

Downloads
17
Abstract Views
98
PlumX Metrics