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"A Theory of Production" The Estimation of the Cobb-Douglas Function: A Retrospective View

  • Jesus Felipe
  • F. Gerard Adams

The Cobb-Douglas production function is still today the most ubiquitous form in theoretical and empirical analyses of growth and productivity. The estimation of the parameters of aggregate production functions is central to much of today's work on growth, technological change, productivity, and labor. This paper has taken up Samuelson's [1979] invitation to verify empirically his claim that all the regression of the Cobb-Douglas [1928] production function does is to reproduce the income accounting identity according to which value added equals the sum of the wage bill plus total profits. This paper concludes that Samuelson was right, and believes that this argument has very serious implications for today's work in macroeconomics.

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

Volume (Year): 31 (2005)
Issue (Month): 3 (Summer)
Pages: 427-445

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Handle: RePEc:eej:eeconj:v:31:y:2005:i:3:p:427-445
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  1. Pesaran, M. Hashem & Shin, Y. & Smith, R.J., 1999. "Bounds Testing Approaches to the Analysis of Long-run Relationships," Cambridge Working Papers in Economics 9907, Faculty of Economics, University of Cambridge.
  2. 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.
  3. Julia Darby & Simon Wren-Lewis, 1993. "Is There a Cointegrating Vector for UK Wages?," Journal of Economic Studies, Emerald Group Publishing, vol. 20(1/2), pages 87-115, January.
  4. Bardsen, Gunnar, 1989. "Estimation of Long Run Coefficients in Error Correction Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(3), pages 345-50, August.
  5. Fisher, Franklin M, 1969. "The Existence of Aggregate Production Functions," Econometrica, Econometric Society, vol. 37(4), pages 553-77, October.
  6. Samuelson, Paul A, 1979. "Paul Douglas's Measurement of Production Functions and Marginal Productivities," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 923-39, October.
  7. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  8. 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.
  9. Jesus Felipe & Franklin M. Fisher, 2003. "Aggregation in Production Functions: What Applied Economists should Know," Metroeconomica, Wiley Blackwell, vol. 54(2-3), pages 208-262, 05.
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