Problems with Regional Production Functions and Estimates of Agglomeration Economies: A Caveat Emptor for Regional Scientists
AbstractOver the last 20 years or so, mainstream economists have become more interested in spatial economics and have introduced largely neoclassical economic concepts and tools to explain phenomena that were previously the preserve of economic geographers. One of these concepts is the aggregate production function, which is also central to much of regional growth theory. However, as Franklin Fisher, inter alios, has shown, the conditions necessary to aggregate microproduction functions into an aggregate production function are so stringent that in all probability the aggregate production function does not exist. This paper shows that the good statistical fits commonly found empirically are solely due to the use of value data and an underlying accounting identity. The result is that the estimates obtained cannot be regarded as providing evidence of the underlying technological structure of the spatial economy, including the aggregate elasticity of substitution, the degree of returns to scale, and the rate of technical progress.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_725.
Date of creation: May 2012
Date of revision:
Contact details of provider:
Web page: http://www.levyinstitute.org
Accounting Identity; Agglomeration Economies; Regional Aggregate Production Functions;
Find related papers by JEL classification:
- B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-EFF-2012-05-29 (Efficiency & Productivity)
- NEP-PKE-2012-05-29 (Post Keynesian Economics)
- NEP-URE-2012-05-29 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- O'Donnell, A T & Swales, J K, 1979. "Factor Substitution, the C.E.S. Production Function and U.K. Regional Economics," Oxford Economic Papers, Oxford University Press, vol. 31(3), pages 460-76, November.
- Hans-Friedrich Eckey & Reinhold Kosfeld & Matthias Türck, 2005. "Regional Convergence in Germany. A Geographically Weighted Regression Approach," Discussion Papers in Economics 76/05, University of Kassel, Institute of Economics.
- Nakamura, Ryohei, 1985. "Agglomeration economies in urban manufacturing industries: A case of Japanese cities," Journal of Urban Economics, Elsevier, vol. 17(1), pages 108-124, January.
- Corrado, L. & Fingleton, B., 2011.
"Where is the economics in spatial econometrics?,"
SIRE Discussion Papers
2011-02, Scottish Institute for Research in Economics (SIRE).
- Luisa Corrado & Bernard Fingleton, 2011. "Where is the Economics in Spatial Econometrics?," SERC Discussion Papers 0071, Spatial Economics Research Centre, LSE.
- Luisa Corrado & Bernard Fingleton, 2011. "Where is the Economics in Spatial Econometrics?," Working Papers 1101, University of Strathclyde Business School, Department of Economics.
- Vassilis Tselios, 2009. "Growth and Convergence in Income Per Capita and Income Inequality in the Regions of the EU," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(3), pages 343-370.
- Harris, Richard I D & Trainor, Mary, 1997. "Productivity Growth in the UK Regions, 1968-91," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(4), pages 485-509, November.
- Guido Ascari & Valeria Di Cosmo, 2005.
"Determinants of Total Factor Productivity in the Italian Regions,"
- Guido Ascari & Valeria di Cosmo, 2005. "Determinants of total factor productivity in the italian Regions," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2005(2).
- John S. L. McCombie & Mark Roberts, 2007. "Returns To Scale And Regional Growth: The Static-Dynamic Verdoorn Law Paradox Revisited," Journal of Regional Science, Wiley Blackwell, vol. 47(2), pages 179-208.
- Hoover,Kevin D., 2012. "Applied Intermediate Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521763882, December.
- Florax, R. & Folmer, H., 1991.
"Specification and Estimation of Spatial Linear Regression Models: Monte Carlo Evaluation of Pre-Test Estimator,"
Mansholt Working Papers
1991-4, Wageningen University, Mansholt Graduate School of Social Sciences.
- Florax, Raymond & Folmer, Henk, 1992. "Specification and estimation of spatial linear regression models : Monte Carlo evaluation of pre-test estimators," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 405-432, September.
- Roberto Esposti & Stefania Bussoletti, 2008. "Impact of Objective 1 Funds on Regional Growth Convergence in the European Union: A Panel-data Approach," Regional Studies, Taylor & Francis Journals, vol. 42(2), pages 159-173.
- 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.
- Gasper A. Garofalo & Steven Yamarik, 2002. "Regional Convergence: Evidence From A New State-By-State Capital Stock Series," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 316-323, May.
- Asier Minondo, 2010. "Exports' Productivity and Growth across Spanish Regions," Regional Studies, Taylor & Francis Journals, vol. 44(5), pages 569-577.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).
If references are entirely missing, you can add them using this form.