Modeling vine-production function: An approach based on Vine Copula

Abstract The estimation of the production function in the traditional form is deterministic and does not take into account the distribution of production activities and the heterogeneity of economic agents, providing the possibility of a new approach, a probabilistic way of analyzing the relationship between variables. This paper proposes a new production function using a vine-based copulation approach. A vine copula allows us to explore asymmetry and multivariate distributions. We perform an empirical analysis using data of companies listed in Brazil, USA, Germany, and England. The results show that the data are heterogeneous and have different degrees of temporal dependence in each country. In order to analyze the asymmetry, we investigated the families of copula and also found different substitution behavior between production factors.