Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution
AbstractI present new estimates of the elasticity of substitution between capital and labor using data from the private sector of the U.S. economy for the period 1948-1998. I first adopt Berndtâ€™s (1976) specification, which assumes that technological change is Hicks neutral. Consistently with his results, I estimate elasticities of substitution that are not significantly different from one. I next show, however, that restricting the analysis to Hicks-neutral technological change necessarily biases the estimates of the elasticity towards one. When I modify the econometric specification to allow for biased technical change, I obtain significantly lower estimates of the elasticity of substitution. I conclude that the U.S. economy is not well described by a Cobb-Douglas aggregate production function. I present estimates based on both classical regression analysis and time series analysis. In the process, I deal with issues related to the nonsphericality of the disturbances, the endogeneity of the regressors, and the nonstationarity of the series involved in the estimation.
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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3196325.
Date of creation: 2004
Date of revision:
Publication status: Published in Contributions in Macroeconomics
Other versions of this item:
- Antràs Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-36, April.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O - Economic Development, Technological Change, and Growth
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