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

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  • Jesus Felipe
  • F. Gerard Adams

Abstract

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.

Suggested Citation

  • Jesus Felipe & F. Gerard Adams, 2005. ""A Theory of Production" The Estimation of the Cobb-Douglas Function: A Retrospective View," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 427-445, Summer.
  • Handle: RePEc:eej:eeconj:v:31:y:2005:i:3:p:427-445
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    1. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    2. Jesus Felipe & J. S. L. McCombie, 2001. "The CES Production Function, the accounting identity, and Occam's razor," Applied Economics, Taylor & Francis Journals, vol. 33(10), pages 1221-1232.
    3. Mohammad Hashem Pesaran & Yongcheol Shin & Richard J Smith, 1999. "Bounds Testing Approaches to the Analysis of Long Run Relationships," ESE Discussion Papers 46, Edinburgh School of Economics, University of Edinburgh.
    4. Klette, Tor Jakob & Griliches, Zvi, 1996. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Endogenous," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 343-361, July-Aug..
    5. A. Cohen & G. Harcourt., 2009. "Whatever Happened to the Cambridge Capital Theory Controversies?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
    6. 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.
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    8. 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.
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    12. 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 345-350, August.
    13. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
    14. 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 923-939, October.
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