The identification of directed technical change revisited

Saam, Marianne

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URN: urn:nbn:de:bsz:180-madoc-375285
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-127
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C15 , O30 , O47,
Keywords (English): Directed technical change , estimation of production functions , CES functions , translog functions
Abstract: Technical change that augments capital and labor input in a non-neutral way plays an important role in explaining the relation between growth and other macroeconomic outcomes. Previous research has shown that restricting technical change to be neutral leads to overestimating the elasticity of substitution between capital and labor. I extend this line of analysis to misspecification of the functional form. Evidence from Monte Carlo simulations shows that the problem of biased estimates of the direction of technical change is relevant in the estimation of aggregate CES and translog production functions. In particular, I find examples where true technical change is neutral and estimated technical change is strongly directed towards one factor.

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