- <Source Information> Jaedo Choi, Hyungsik R. Moon and Jin Seo Cho (2022): Econometric Theory, 40, (2024), 98-161.
- <Abstract> This study provides an econometric methodology to test a linear structural relationship among economic variables. For this, we propose the so-called distance-difference (DD) test and show that it has omnibus power against arbitrary nonlinear structural relationships. If the DD-test rejects the linear model hypothesis, a sequential testing procedure assisted by the DD-test can consistently estimate the degree of polynomial function that arbitrarily approximates the nonlinear structural equation. Using extensive Monte Carlo simulations, we confirm the DD-test's finite sample properties and compare its performance with the sequential testing procedure assisted by the J-test and moment selection criteria. Finally, we provide an empirical illustration by investigating the relationship between the value-added and its production factors using firm-level data from the United States. By our methodology, we affirm that the production function has exhibited a factor-biased technological change instead of Hicks-neutral technology presumed by Cobb-Douglas production function.