The productivity index of industrial upgrading rises and chinas industrial structure increasingly depends on industries with high productivity and high technology complexity. N2 we add to the methods for conditioning out serially correlated unobserved shocks to the production technology. The results, obtained by applying the levinsohn petrin estimation approach, show the positive influence on firms productivity exerted by internal knowledge capital and by intangible assets available in the regional economy. A key assumption is that the proxy is a monotonic function of unobserved productivity. Levinsohn is the founding director of yales jackson institute for global affairs.
Amit gandhi, kyooil kim, and amil petrin, identification and estimation in discrete choice demand models when endogenous variables interact with the error, march 2011, pdf, slides 2017. Theory and practice of totalfactor productivity estimation. Programming the levinsohn and petrin estimation technique in stata is a little. Estimating production functions using inputs to control. Ackerberg, kevin caves, and garth frazer 2015 have developed a modified version of estimation by their work entitled. Since the olleypakes 1996 and levinsohn petrin lp 2003 techniques, while controlling for the simultaneity bias, suffer from collinearity problems. The dynamics of productivity in the telecommunications equipment industry. In that capacity, he oversees the global affairs major in yale college, the global affairs ma programs, and yales world fellows program. We employ the levinsohn petrin tfp measurement as in levinsohn and petrin 2003 for two main reasons.
The control function approach using stata show all authors. A key issue in the estimation of production functions is the correlation between unobservable productivity shocks and input levels. Levinsohn and petrin 2003a develop this link, showing the mild conditions that must hold if intermediate inputs are to be a valid proxy for the productivity shock. Estimating production functions using inputs to control for unobservables james levinsohn, amil petrin. The dependent variable is firm total factor productivity tfp, calculated using the levinsohn petrin approach. This paper analyzes the causal relationship between foreign ownership and firmlevel performance in china. Advances in measuring productivity economists incorporated.
We define aggregate productivity growth as the change in aggregate final demand minus the change in the aggregate cost of primary inputs. Highway access was calculated using a geographic information system gis in which the. The paper therefore provides a clearer picture of how precisely productivity. Olley and pakes 1996 and levinshon petrin 2003 levinsohn and petrin 2003, as well as their correction proposed by ackerbergcavesfrazer 2015 ackerberg, caves, and frazer 2015. Measuring aggregate productivity growth using plant. You can of course code the estimator yourself, but this may be a bridge too far for many stata users. We present a new eclass command, acfest, that implements the method of ackerberg, caves, and frazer 2015, econometrica 83. Industrial organization, productivity, innovation, and entrepreneurship. To estimate the productivity effects of access to highways, i calculated firmlevel total factor productivity tfp using the levinsohn and petrin 2003 approach to further control for endogeneity problems in tfp arising from unobserved productivity shocks. Measuring aggregate productivity growth using plantlevel data. Production function estimation in stata using inputs to. Poi statacorp james levinsohn university of michigan nber clicking on the line beginning st0060 took me to a fuller description, and from that description, having confirmed that it was.
Estimating total factor productivity tfp at firm level. Production function estimation in stata using inputs to control for. Assessing the impact of foreign direct investment on. Total factor productivity tfp estimation in stata using.
Because their methods gave them reliable tfp estimates at the plant level, they were also able to conclude that the observed productivity gains were primarily the result of a reallocation of capital towards more productive establishments. Levinsohn and petrin 2003 argue that ols overestimate parameters of the free v ariables. Firms that have a large positive productivity shock may respond by using more inputs. Levinsohn petrin productivity estimator dependent variable represents revenue. The computation of productivity follows the methodology suggested by levinsohn and petrin 2003 to control for endogeneity problems arising from the simultaneous choice of inputs and productivity by the firm. Does education raise productivity and wages equally. The prodestlp the prodestwrdg function accepts at least 6 objects id, time, output, free, state and proxy variables, and returns a prod object of class s3 with three elements. Assessing the impact of foreign direct investment on domestic. Services trade and firm productivity economic research forum. Measuring aggregate productivity growth using plantlevel data amil petrin university of minnesota, twin cities national bureau of economic research and james levinsohn university of michigan national bureau of economic research may 29, 2008 1.
James levinsohn and amil petrin, on the microfoundations of productivity growth, november 2003, pdf. This video deal with estimation of technical efficiency tfp in panel data framework using levinsohn and petrin 2003a for more detail kindly see this paper. Levinsohn and petrin lp developed an estimator that utilize the materialintermediate consumption variable as the proxy for the unobserved productivity term and provide consistent in tfp estimation at firm level especially when the information about firms investment is not available to apply op method. Production function estimation in stata using inputs to control for unobservables by amil petrin university of chicago nber brian p. The system gmm framework proposed by wooldridge 2009 wooldridge 2009 is also implemented in two slightly different versions. The productivity impact of foreign direct investment. Pdf theory and practice of totalfactor productivity. Intangible capital and firms productivity industrial and. As shown in column 1, table 2, productivity has a positive and statistically significant effect on export participation when both controlling for both observable and unobservable heterogeneity of firms. The second estimation used total factor productivity as the dependent variable, where tfp was estimated using levinsohn petrin productivity estimator. Third results biased due to a possible difference in the. In order to avoid this limitation, levinsohn and petrin 2003 use intermediate inputs, which are more likely to remain positive for all observations, as a proxy for unobserved productivity shocks.
Stata files for levinsohnpetrin 2003 production function estimator levpet. If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Estimating production functions using inputs to control for unobservables. Petrin and levinsohn w11887 measuring aggregate productivity growth using plantlevel data national bureau of economic research, 1050 massachusetts ave. Olley and pakes show how to use investment to control for correlation between input levels and the unobserved firmspecific productivity process. We build on ideas first developed in olley and pakes 1996. Do productivity and ownership really matter for growth. A potential problem with using investment is that it is often 0, and so cannot be a strictly monotonic function of productivity. More recently, levinsohn and petrin 2003a introduce an estimator that uses intermediate inputs as proxies, arguing that intermediates may respond more smoothly to productivity shocks. Downloading the levpet command levinsohn and petrin. As other internal and external factors were added to the regression as control variable, the study provides early evidence that while the.
Eastern regions are characterized by biggest change and the best quality, better in the central and the worst in the west. Poi and james levinsohn additional contact information amil petrin. T1 estimating production functions using inputs to control for unobservables. Levinsohn and petrins 2003 methodology works under. This method deals with the functional dependence problems that may arise in the methods proposed by olley and pakes 1996, econometrica 64. As an alternative measure of firm productivity, this study uses labor productivity. Jim levinsohn and amil petrin later developed a new method that extended the ideas of op. The economics underlying this concern are intuitive. Levinsohn 115 for the purposes of this note, the production technology is assumed to be cobb douglas yt. He is a member of the council on foreign relations and has consulted for many government and nongovernmental organizations as well as many multinational corporations. How did targeted government trade policies impact the. Jan 24, 20 we define aggregate productivity growth apg as the change in aggregate final demand minus the change in the aggregate expenditures on labor and capital. This study finds that, in most instances 10 out of 14 times, targeted policies do not show a significant impact on manufacturing firms tfp.
Olleypakes, levinsohn petrin, ackerbergcavesfrazer have all contributed to the literature proposing twosteps estimation procedures, while wooldridge showed how to perform a consistent estimation within a single step gmm. Intangible capital and firms productivity industrial. Estimating production functions using inputs to control for. Ict capital spending, ict sector, and firm productivity.
Alongside instrumental variable iv and fixed effects fe, the control function cf approach is the most widely used in production function estimation. Feb 10, 2018 this video deal with estimation of technical efficiency tfp in panel data framework using levinsohn and petrin 2003a for more detail kindly see this paper. We add to the methods for conditioning out serially correlated unobserved shocks to the production technology. Estimating production functions using inputs to control for unobservables authors. Productivity, innovation, and entrepreneurship, international trade and investment we introduce a new method for conditioning out serially correlated unobserved shocks to the production technology by building ideas first. While there are some solid and intuitive indentication ideas in these papers, we argue that the techniques, particularly those of levinsohn and petrin, su. Rather than withdrawing the paper from the program all together, the best we can. Levinsohn and petrin 2003 propose using a commonly observable variable intermediate input to control for unobserved productivity. We employ the levinsohn petrin tfp measurement as in levinsohn and petrin. The other builds upon the production theory and is first introduced by levinsohn and petrin 2003 using intermediate input proxies.
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