An empirical study of the labor and capital production functions of Chinese automobile industry

Summary form only as given. To estimate the causal relationship between the input and output of a firm, usually the linear regression approach is utilized. However, this simple approach for estimating the production functions requires a pre-specification of a parametric equation and the assumption of population normality, which are hardly the cases of real world situation. Nonparametric analysis models are the alternative while this requirement is violated. In this paper, in order to understand the complex relationship between the labor and capital input to the production output of Chinese automobile industry, the authors empirically studied 426 carmakers in mainland China using the additive nonparametric model. The findings first show that the labor and capital production functions are evidently different in terms of the influence to the production value. In addition, the research found the fact that there is serious implicit unemployment in Chinese automobile industry. Finally, a comparison between the result from traditional parametric regression model and those from the nonparametric regression model shows that the nonparametric approach is more general and explanative