Least Deviance Estimation bootstrap techniques applied to aggregated production elasticity coefficients. Empirical evidence from the Palestinian Industry

Abstract

The aim of this paper is to provide production elasticity estimates for the aggregate production functions of developing countries. We use aggregate data concerning the production sectors from two Middle Eastern countries. Unfortunately, the available data are quite of bad quality (small samples with high variability and time inconsistency), implying that the traditional OLS-estimates are biased. We propose an estimation procedure based on the bootstrap least deviance technique and find that the estimated elasticity is both significant and robust. For time-saving purposes, we repeat estimates for three available cross-sections of 71 manufacturing aggregates, and obtain increasing returns to scale for the manufacturing sector, which are supposed to reflect the imperfect competition of the market and/or the existence of high set-up or sunk costs, that are mandatory in order to produce at all.