**Model Construction and Data**

- SK: Software Capital
- HK: Hardware Capital (includes computer and peripheral but machinery and other electrical equipment)
- OK: Organisation Capital (Difference between Capital Stock and Software Capital and Hardware Capital)
- LH: Labour Hours
- VA: Value Added

The productivity function that I applied is the translog-production function similar to Hitt (2002), model (1). Click on the image to enlarge and view the equation.

The choice for this model was that it does not constrain the elasticities to be unary.

I then transformed the data to be in accordance with the model (1) and a pooled OLS was then run in R to find the coefficients. The results of the regression are below:

Call:

lm(formula = lnVa ~ lnSk + lnHk + lnOk + lnLh + lnSklnHk + lnSklnOk +

Min 1Q Median 3Q Max

-0.58722 -0.16982 -0.02798 0.19408 0.72151

Estimate Std. Error t value Pr(>|t|)

(Intercept) 8.493241 6.164181 1.378 0.16979

lnSk -7.735495 1.051449 -7.357 4.69e-12 ***

lnHk 4.858182 0.820692 5.920 1.37e-08 ***

lnOk -3.002444 0.727414 -4.128 5.37e-05 ***

lnLh 4.214768 1.148203 3.671 0.00031 ***

lnSklnHk -0.008317 0.093900 -0.089 0.92951

lnSklnOk 0.586699 0.088497 6.630 3.03e-10 ***

lnSklnLh 0.064016 0.058670 1.091 0.27652

lnHklnOk -0.390088 0.063354 -6.157 3.96e-09 ***

lnHklnLh -0.032604 0.044211 -0.737 0.46171

lnOklnLh -0.416532 0.053405 -7.799 3.31e-13 ***

lnSk2 0.067969 0.054974 1.236 0.21775

lnHk2 -0.018647 0.042730 -0.436 0.66303

lnOk2 0.290936 0.044207 6.581 3.97e-10 ***

lnLh2 0.032540 0.039548 0.823 0.41159

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Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1

Multiple R-Squared: 0.8219, Adjusted R-squared: 0.8095

F-statistic: 66.26 on 14 and 201 DF, p-value: <>

It is evident that some of the results are in contradiction to the underlying economic theory but this can be owing to the quality of the data (more about this later).

**Calculation of AES**

To calculate the AES I needed four items:

- Averages of the independent of variables for each industry
- Partial first order derivatives, second order derivatives of the model(1)
- Bordered Hessian matrix for each industry
- Appropriate co-factor between the independent variables for each industry

**Next Weeks Deliverables**

Secondly, that I worry about the results of the data later and that I should now concentrate on polishing up my calculation methodology to ensure that my procedures are correct and accurate. Dr.Poon has informed me that in my final treatise I will require a detailed description of the process that I undertook in these calculations. Furthermore Dr.Poon has also provided us with more details on the overall structure of our treatise. Since our partial treatise write up is due on August 31 Dr.Poon hopes that we will be able to complete, the Introduction & Motivation, Literature Review and Data set construction technique by then. Once I have finalised my calculation process I will publish it on the blog.

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