Template-Type: ReDIF-Paper 1.0

Author-Name: Steffen Mueller
Author-X-Name-First: Steffen
Author-X-Name-Last: Mueller

Title: Capital stock approximation using firm level panel data
	
Abstract: Many recent studies exploring conditional factor demand or factor substitution
issues use firm level panel data. A considerable number of establishment panels
contains no direct information on the capital input, necessary for production or
cost function estimation. Incorrect measurement of capital leads to biased esti-
mates and casts doubt on any inference on output elasticities or input substitution
properties. The perpetual inventory approach, commonly used for long panels, is
a method that attenuates these problems. In this paper a modified perpetual in-
ventory approach is proposed. This method provides more reliable measures for
capital input when short firm panels are used and no direct information on capital
input is available. The empirical results based on a replication study of Addison et
al. (2006) support the conclusion that modified perpetual inventory is superior to
previous attempts in particular when fixed effects estimation techniques are used.
The method thus makes a considerable number of recently established firm pan-
els accessible to more sophisticated production function or factor demand analyses.
Length:  19 pages
Creation-Date:  2008-01
File-URL: http://www.bgpe.de/texte/DP/038_mueller.pdf
File-Format: Application/pdf
File-Function: First version, 2008
Number: 038
Classification-JEL: C81; D24; J23
Keywords: production function, capital input
Handle: RePEc:bav:wpaper:038_mueller