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GMM estimation with persistent panel data: An application to production functions. (English) Zbl 0953.62123

Summary: This paper considers the estimation of Cobb-Douglas production functions using panel data covering a large sample of companies observed for a small number of time periods. GMM estimators have been found to produce large finite-sample biases when using the standard first-differenced estimator. These biases can be dramatically reduced by exploiting reasonable stationarity restrictions on the initial conditions process. Using data for a panel of R&D-performing US manufacturing companies we find that the additional instruments used in our extended GMM estimator yield much more reasonable parameter estimates.

MSC:

62P20 Applications of statistics to economics
90B30 Production models
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References:

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