Year: 2000
Type: report
Abstract: We introduce a new method for conditioning out serially correlated unobserved shocks to the production technology by building ideas first developed in Olley and Pakes (1996).Olley and Pakes show how to use investment to control for correlation between input levels and the unobserved firmspecific productivity process.We prove that like investment, intermediate inputs (those inputs which are typically subtracted out in a value-added production function) can also solve this simultaneity problem.We highlight three potential advantages to using an intermediate inputs approach relative to investment.Our results indicate that these advantages are empirically important.
DOI: 10.3386/w7819
Authors: James Levinsohn, Amil Petrin
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2061821648