Olley-Pakes productivity decomposition: Computation and inference

Ari Hyytinen*, Pekka Ilmakunnas, Mika Maliranta

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

4 Citations (Scopus)

Abstract

We show how a moment-based estimation procedure can be used to compute point estimates and standard errors for the two components of the widely used Olley-Pakes decomposition of aggregate (weighted average) productivity. When applied to business level microdata, the procedure allows for autocovariance and heteroscedasticity robust inference and hypothesis testing about, for example, the coevolution of the productivity components in different groups of firms. We provide an application to Finnish firm level data and find that formal statistical inference casts doubt on the conclusions that one might draw on the basis of a visual inspection of the components of the decomposition.

Original languageEnglish
Pages (from-to)749-761
Number of pages13
JournalJOURNAL OF THE ROYAL STATISTICAL SOCIETY SERIES A: STATISTICS IN SOCIETY
Volume179
Issue number3
Early online date2015
DOIs
Publication statusPublished - 1 Jun 2016
MoE publication typeA1 Journal article-refereed

Keywords

  • Generalized method of moments
  • Inference
  • Productivity
  • Weighted average

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