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RE: st: AW: RE: levpet for service sector firms


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: AW: RE: levpet for service sector firms
Date   Tue, 27 Oct 2009 16:58:40 -0000

Prabal,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Prabal De
> Sent: Tuesday, October 27, 2009 4:24 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: AW: RE: levpet for service sector firms
> 
> My Bad. It does stand for Total Factor Productivity which is
> contribution of the 'residual term' A after factoring out
> contributions of labor and capital in a production function. For a log
> Cobb-Douglas production function
> 
> logY = logA + (alpha)logL + (1-alpha)logK
> 
> Nick:
> Since this is essentially an "accounting" procedure, TFP will be
> mechanically high if you have low labor and capital. And
> Levinsohn-Petrin procedure controls for endogeneity in capital stock
> by instrumenting with intermediate inputs like fuel.
> Now intuitively, for service sector firms both physical capital and
> fuel are much less important. Then one argument is that they DO have
> very high TFP. I haven't found a logic contrary to this myself except
> toying with other intermediate inputs like communication expenses(nor
> any reference), but then there are smarter economists around and in
> Statalist. I still hope someone can shed more light on this issue.

I'm not sure I fit that last description, but in any case...

Services firms in retail and wholesale trade (which is a big chunk of the total) typically have very large intermediate input costs.  In essence, they are buying finished goods (=intermediate inputs) and reselling them conveniently packaged and located.

HTH,
Mark

> 
> Thanks and regards,
>           Prabal
> 
> On 10/27/09, Martin Weiss <martin.weiss1@gmx.de> wrote:
> >
> > <>
> >
> > Prabal may also want to let statalisters know what "TFP" 
> stands for... Let
> > me guess: "Total Factor Productivity"?
> >
> > As far as I can tell, not even the -rather comprehensive- article
> > introducing -levpet-
> > http://www.stata-journal.com/sjpdf.html?articlenum=st0060 
> mentions this
> > term....
> >
> >
> >
> >
> > HTH
> > Martin
> >
> >
> > -----Ursprüngliche Nachricht-----
> > Von: owner-statalist@hsphsun2.harvard.edu
> > [mailto:owner-statalist@hsphsun2.harvard.edu] Im Auftrag 
> von Nick Cox
> > Gesendet: Dienstag, 27. Oktober 2009 14:44
> > An: statalist@hsphsun2.harvard.edu
> > Betreff: st: RE: levpet for service sector firms
> >
> > Just curious, as I only understand some of this and it's 
> not my field:
> > why do different numbers require a different logic?
> >
> > Nick
> > n.j.cox@durham.ac.uk
> >
> > Prabal De
> >
> >   I am trying to estimate a production function for service sector
> > firms using <levpet>. However, the usual method for manufacturing
> > sector is giving very high TFPs as naturally the service 
> sector firms
> > use less physical capital. Is there is variation of the levpet
> > procedure for service sector firms?
> >
> >
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