Estimation of a production function with domestic and foreign capital stock

We estimate a Cobb-Douglas production function distinguishing between a domestic and a foreign capital stock built from data of imported machinery and transport equipment for Brazil. The preferred regression uses log levels estimated by GMM-HAC. Results are that the elasticity of production of foreign capital is about 40% of that of domestic capital, the function has constant returns to scale in capital and labour variables, and human capital and technical change are also highly productive.

JEL Classification: C22, C51, E23, F43, O54

Keywords: time-series, estimation, production function, open economy, Brazil