A Practical Approach to Estimating Sector-Level Substitution Elasticities with PPML

In this paper, we provide a practical approach to estimating the elasticity of substitution by sector using a PPML estimator, building on the methodology described in Riker (2020). The method is illustrated by estimating elasticities for NAICS 3-digit and 6-digit manufacturing sectors. The PPML estimates are compared with estimates produced using OLS and across different levels of aggregation in the data. We find that the PPML estimator tends to produce elasticity estimates that are larger and have greater variability than the OLS estimates.