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Aggregate Production Functions: A Pervasive, but Unpersuasive, Fairytale

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  • Franklin Fisher

Abstract

This article reviews the case against aggregate production functions and then consider its implications. There are two types of aggregation problems involved in the existence of an aggregate production function for the economy as a whole or even for some sector thereof. The first of these consists of aggregation over different factors to form aggregate labor or aggregate capital and of aggregation over different products to form aggregate output. The second problem consists of aggregation over firms. The consequences of the non-existence of aggregate production functions have been too long overlooked. Attempts to explain the impossibility of using aggregate production functions in practice are often met with great hostility, even outright anger. To that, the moral is : Do not interfere with fairytales if you want to live happily ever after.

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  • Franklin Fisher, 2005. "Aggregate Production Functions: A Pervasive, but Unpersuasive, Fairytale," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 489-491, Summer.
  • Handle: RePEc:eej:eeconj:v:31:y:2005:i:3:p:489-491
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume31/V31N3P489_491.pdf
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    1. 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, May.
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    Cited by:

    1. Javier López-Bernardo & Félix López-Martínez & Engelbert Stockhammer, 2016. "A Post-Keynesian Response to Piketty's ‘Fundamental Contradiction of Capitalism’," Review of Political Economy, Taylor & Francis Journals, vol. 28(2), pages 190-204, April.
    2. Jamee K. Moudud, 2010. "Strategic Competition, Dynamics, and the Role of the State," Books, Edward Elgar Publishing, number 4241.
    3. repec:kap:sbusec:v:49:y:2017:i:3:d:10.1007_s11187-017-9851-0 is not listed on IDEAS
    4. Jesus Felipe & John McCombie, 2010. "On Accounting Identities, Simulation Experiments and Aggregate Production Functions: A Cautionary Tale for (Neoclassical) Growth Theorists," Chapters,in: Handbook of Alternative Theories of Economic Growth, chapter 9 Edward Elgar Publishing.

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