Working Paper: NBER ID: w2619
Authors: Jacques Mairesse; Zvi Griliches
Abstract: We estimate separate productions functions for approximately 450 manufacturing firms each in France and the United States and for 850 manufacturing firms in Japan, covering the 13 year period 1967-1979, and focus on the wide dispersion in the estimated slope coefficients in all three countries. The main question asked Is: "Is this dispersion real?" Could it be just a reflection of sampling variability or is it an indication of real heterogeneity? We estimate the "true" dispersion using three different approaches: Maximum Likelihood, regressions of squares and cross-products of residuals, and Swamy's "residual" method, and try to interpret the somewhat different answers which emerge. In particular, we investigate the "reality" of the estimated heterogeneity by looking at its stability over time and by relating it to differences in capital shares and the industrial structure. We conclude that the observed heterogeneity is not "real." It is caused by some non-stable misspecification of our simple model, implying that we are unlikely to discern different but stable individual production relations in samples of this size which contain only a limited number of the economically relevant variables.
Keywords: heterogeneity; production functions; panel data; maximum likelihood estimation
JEL Codes: C23; D24; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observed heterogeneity in production functions across firms (D29) | not real (Y70) |
| nonstable misspecification of model (C51) | observed heterogeneity in production functions across firms (D29) |
| dispersion in estimates (C13) | attributed to sampling variability (C83) |
| estimated capital coefficients across firms (G31) | wide range (D39) |
| observed dispersion (C46) | not due to permanent differences in firm-level production functions (D21) |