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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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    Cited by:

    1. John S.L. McCombie, 2011. "'Cantabrigian Economics' and the aggregate production function," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(1), pages 165-182.
    2. 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.
    3. King, Carey W., 2020. "An integrated biophysical and economic modeling framework for long-term sustainability analysis: the HARMONEY model," Ecological Economics, Elsevier, vol. 169(C).
    4. Jesus Felipe & John McCombie, 2010. "On Accounting Identities, Simulation Experiments and Aggregate Production Functions: A Cautionary Tale for (Neoclassical) Growth Theorists," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 9, Edward Elgar Publishing.
    5. Eric Kemp-Benedict & Crystal Drakes & Timothy J. Laing, 2018. "Export-Led Growth, Global Integration, and the External Balance of Small Island Developing States," Economies, MDPI, vol. 6(2), pages 1-25, June.
    6. Chris Bojke & Adriana Castelli & Katja Grašič & Andrew Street, 2017. "Productivity Growth in the English National Health Service from 1998/1999 to 2013/2014," Health Economics, John Wiley & Sons, Ltd., vol. 26(5), pages 547-565, May.
    7. Lewin, Peter & Cachanosky, Nicolás, 2018. "Substance and semantics: The question of capital," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 423-431.
    8. Jamee K. Moudud, 2010. "Strategic Competition, Dynamics, and the Role of the State," Books, Edward Elgar Publishing, number 4241.
    9. John S.L. McCombie & Ioana Negru, 2014. "On economic paradigms, rhetoric and the micro-foundations of macroeconomics," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(1), pages 53-66, April.
    10. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.
    11. José Luis Massón-Guerra & Pedro Ortín-Ángel, 2017. "Regional entrepreneurship capital and firm production," Small Business Economics, Springer, vol. 49(3), pages 595-607, October.
    12. Peter Lewin & Nicolás Cachanosky, 2018. "Value and capital: Austrian capital theory, retrospect and Prospect," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 31(1), pages 1-26, March.

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