Production function estimation in Stata using inputs to control for unobservables
Amil Petrin
University of Chicago
National Bureau of Economic Research
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Brian P. Poi
StataCorp
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James Levinsohn
University of Michigan
National Bureau of Economic Research
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Abstract. A key issue in the estimation of production functions is the correlation
between unobservable productivity shocks and input levels. Profit-maximizing
firms respond to positive productivity shocks by expanding output, which
requires additional inputs. Negative shocks lead firms to pare back output,
decreasing their input usage. Olley and Pakes (1996) develop an estimator
that uses investment as a proxy for these unobservable shocks. More
recently, Levinsohn and Petrin (2003a) introduce an estimator that uses
intermediate inputs as proxies, arguing that intermediates may respond more
smoothly to productivity shocks. This paper reviews Levinsohn and
Petrin’s approach and introduces a Stata command that implements it.
View all articles by these authors:
Amil Petrin, Brian P. Poi, James Levinsohn
View all articles with these keywords:
levpet, production functions, productivity, endogeneity, GMM estimator
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