Manufacturing in United States Metropolitan Areas: Estimation of the Profit Function and Policy Simulations
Panggabean, Martin Partahi Hasoloan
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https://hdl.handle.net/2142/72179
Description
Title
Manufacturing in United States Metropolitan Areas: Estimation of the Profit Function and Policy Simulations
Author(s)
Panggabean, Martin Partahi Hasoloan
Issue Date
1993
Doctoral Committee Chair(s)
Crihfield, John B.,
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Economics, Agricultural
Abstract
This study is concerned with the estimation of the manufacturing sector's profit function in metropolitan areas. It uses a more comprehensive data set than used previously. Further, several factors which have not been explicitly included before in related works are considered, such as city size, size of the manufacturing sector, construction of an output price index, index for quality of capital, and stability of coefficients over time. Finally, the welfare effects of various government policies are calculated.
Estimation of the benchmark model shows that all price elasticities are elastic, and their signs are as expected. Public capital elasticities are positive, although much smaller than reported in the literature.
Various formulations of wage and the output price are tried, and yield results that differ little from the benchmark. Omission of output price implies a misspecification error. Further, output price cannot be replaced by city-size and regional dummies as has been suggested by some authors.
Variations on the formulation of the public capital stock show two things. First, expected effect of public capital appears only after controlling for city size. Second, the size of the public capital elasticities are sensitive to the definition and specification of this public sector variable.
The robustness of 1982 result is established by showing that all elasticities maintain the same signs in 1963 and 1972, despite difficulties encountered in data construction.
Simulations on various government policies are conducted on ten metropolitan areas in five states. Policy simulations considered are changes in state corporate income tax rates, state property tax rates, a combination of both state corporate income tax rates and state property tax rates, interest rates, the federal investment tax credit, wages, the output price, and public capital stocks.
The results shows the existence of different spatial impacts of government policies. It is also clear that the manufacturing sector is more sensitive to a federal policy of changing interest rates than a change in the investment tax credit. Government expenditures on public capital are also shown to be more effective in influencing the manufacturing sector in smaller metropolitan areas than larger ones.
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