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Abstract
This article applies a method of Mark and Sul (Citation2003) to deal with one of potential endogeneity issues that accompany estimation of a log-linear Cobb–Douglas production function with public capital. We show that if nonstationarity in data is admitted, the panel cointegration approach is useful for obtaining more precise estimates of the output elasticity of public capital.
Acknowledgements
I would like to thank Tomomi Miyazaki for discussion concerning some of the data used in this study. This research was supported by Grant-in-Aid No. 16730109 from the Ministry of Education, Culture, Sports, Science and Technology of Japan.
Notes
1 Kao and Chiang (Citation2000) also find results supporting the use of panel DOLS compared with fully modified panel OLS under a different experimental design.
2 We used Mark and Sul's GAUSS program (PDOLS version 2) for the estimation.