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Testing the neo-classical and the Newtonian theory of production

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  • Estola, Matti
  • Dannenberg, Alia
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    Abstract

    We search for regularities observed in the production of goods by studying Finnish data. Despite the heterogeneity of sectoral growth rates in Finland, unit root is observed in annual productions in all main sectors and all manufacturing industries. Thus a linear time trend exists in annual flows of production. This is inconsistent with the static neo-classical theory that assumes firms to produce at their equilibrium flow of production. A different framework is thus needed for modeling the behavior of firms. We test a Newtonian type of model for production against the neo-classical one, and our observation is that the former works better with annual data at every manufacturing industry in Finland.

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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 391 (2012)
    Issue (Month): 24 ()
    Pages: 6519-6527

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    Handle: RePEc:eee:phsmap:v:391:y:2012:i:24:p:6519-6527

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Regularities of production; Industrial growth; Newtonian economics;

    References

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    1. Jesus Felipe, 1998. "Does the aggregate production function imply anything about the laws of production? A comment," Applied Economics Letters, Taylor & Francis Journals, vol. 5(9), pages 543-547.
    2. Jesus Felipe & Rana Hasan & J. S. L. McCombie, 2004. "Correcting For Biases When Estimating Production Functions: An Illusion Of The Laws Of Algebra?," CAMA Working Papers 2004-13, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Papers cond-mat/9702082, arXiv.org.
    4. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    5. George W. Stadler, 1994. "Real Business Cycles," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1750-1783, December.
    6. Shaikh, Anwar, 1974. "Laws of Production and Laws of Algebra: The Humbug Production Function," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 115-20, February.
    7. Matti Estola, 2001. "A Dynamic Theory Of A Firm: An Application Of 'Economic Forces'," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 163-176.
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