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Nonlinear Dynamics and Pseudo-Production Functions

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  • Anwar Shaikh

Abstract

Aggregate production functions are still widely used four decades after it was conceded that they could not be grounded in any plausible micro-foundations. This paper shows that aggregate production functions can always be made to work on any data that exhibits roughly constant wage shares, even when the underlying technology is non-neoclassical. But in so doing, they always pick up the accounting identity that underlies the data. This is demonstrated on both actual US data and a control data set derived from a fixed coefficient model with Harrod-neutral technical change and a persistent rate of unemployment. It is proved that one can generate an infinite number of fits, each of which gives a different reading of the rate of technical change. It follows that even when aggregate production functions appear to work at an empirical level, they provide no support for the neoclassical theory of aggregate production and distribution. On the contrary, the best of fits can utterly misrepresent the true underlying mechanisms of production, distribution, technical change, and growth.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume31/V31N3P447_466.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 31 (2005)
Issue (Month): 3 (Summer)
Pages: 447-466

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Handle: RePEc:eej:eeconj:v:31:y:2005:i:3:p:447-466

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  1. J. S. L. McCombie, 1998. "'Are There Laws of Production': an assessment of the early criticisms of the," Review of Political Economy, Taylor & Francis Journals, vol. 10(2), pages 141-173.
  2. Harcourt, G C, 1969. "Some Cambridge Controversies in the Theory of Capital," Journal of Economic Literature, American Economic Association, vol. 7(2), pages 369-405, June.
  3. Harcourt, G C, 1976. "The Cambridge Controversies: Old Ways and New Horizons-Or Dead End?," Oxford Economic Papers, Oxford University Press, vol. 28(1), pages 25-65, March.
  4. Thomas Michl, 1999. "Biased Technical Change and the Aggregate Production Function," International Review of Applied Economics, Taylor & Francis Journals, vol. 13(2), pages 193-206.
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Cited by:
  1. Thomas Fredholm & Stefano Zambelli, 2013. "Production Functions Behaving Badly - Reconsidering Fisher and Shaikh," ASSRU Discussion Papers 1305, ASSRU - Algorithmic Social Science Research Unit.
  2. Geoffrey Harcourt & Peter Kriesler, 2012. "Introduction [to Handbook of Post-Keynesian Economics: Oxford University Press: USA]," Discussion Papers 2012-33, School of Economics, The University of New South Wales.
  3. Jesus Felipe & John McCombie, 2012. "Aggregate Production Functions and the Accounting Identity Critique: Further Reflections on Temple's Criticisms and Misunderstandings," Economics Working Paper Archive wp_718, Levy Economics Institute.
  4. Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
  5. K. Vela Velupillai, 2013. "HUMBUGS and other Exotica -- Celebrating Anwar Shaikh," ASSRU Discussion Papers 1307, ASSRU - Algorithmic Social Science Research Unit.

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