TFPwithoutCapital < CERIBA

-- RalfMartin - 27 May 2007

Title	TFP without Capital Stocks
Author	Ralf Martin
Year	2005
Abstract	I propose a new way of dealing with the fact that often only in- vestment but not capital stocks are reported in business micro data sets. Capital stock information is essential to calculate measures of total factor productivity (TFP). Because data on investment is usu- ally available, on the other hand, the standard practice is to apply some perpetual inventory method (PIM). This is not without prob- lems however. A PIM calculation requires many assumptions. Besides assumptions on depreciation, we need to come up with guesses of the initial values. If plants are subject to random sampling so that they are not observed in all periods they are alive then we equally have to guess their investment levels in those periods. Standard practice is to do these various steps in fairly ad hoc ways which are not neces- sarily mutually consistent. Moreover, once an estimate of the plant level capital is obtained it is often treated in subsequent productivity calculations like a variable that is directly observed although it is pre- sumably subject to serious measurement error. The paper addresses these issues by developing a novel framework which allows the simul- taneous estimation of TFP and capital stock using simulation based inference methods. I also develop a test which investigates if the re- strictions implied by more standard ways of computing the capital stock matter empirically.
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Topic revision: r1 - 27 May 2007 - 10:44:37 - RalfMartin