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DOES ECONOMIC FREEDOM AFFECT THE PRODUCTION FRONTIER? A SEMIPARAMETRIC APPROACH WITH PANEL DATA
Author(s) -
Zhang Fan,
Hall Joshua,
Yao Feng
Publication year - 2018
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12548
Subject(s) - economics , econometrics , estimator , frontier , production (economics) , semiparametric model , parametric statistics , productivity , production–possibility frontier , panel data , flexibility (engineering) , human capital , microeconomics , nonparametric statistics , mathematics , macroeconomics , statistics , archaeology , management , history , economic growth
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 C14, O43)