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Aggregate production functions, neoclassical growth models and the aggregation problem/Funciones agregadas de producción, modelos neoclasicos de crecimiento y el problema de la agregación

Author

Listed:
  • JESUS FELIPE

    () (Macroeconomics and Finance Research Division. Economics and Research Department. Asian Development Bank. Manila, Philippines;)

  • FRANKLIN M. FISHER

    () (Massachusetts Institute of Technology. Cambridge, MA 02139-4307)

Abstract

Lawrence R. Klein pioneered the work on aggregation, in particular in production functions, in the 1940s. He paved the way for researchers to establish the conditions under which a series of micro production functions can be aggregated so as to yield an aggregate production function. This work is fundamental in order to establish the legitimacy of theoretical (neoclassical) growth models and empirical work in this area (e.g., growth accounting exercises, econometric estimation of aggregate production functions). This is because these models depend on the assumption that the technology of an economy can be represented by an aggregate production function, i.e., that the aggregate production function exists. However, without proper aggregation one cannot interpret the properties an aggregate production function. The aggregation literature showed that the conditions under which micro production functions can be aggregated so as to yield an aggregate production function are so stringent that it is difficult to believe that actual economies can satisfy them. These results question the legitimacy of growth models and their policy implications. Scientifi c work cannot proceed as if production functions existed. For this reason, the profession should pause before continuing to do theoretical and applied work with no sound foundations and dedicate some time to studying other approaches to estimating the impact of economic policies in order to understand what questions can legitimately be posed to the empirical aggregate data. Lawrence R. Klein fue uno de los pioneros del campo de la agregación, en particular en el área de las funciones de producción, durante la década de los 40. Sus contribuciones ayudaron a defi nir el problema de la agregación para que investigadores posteriores establecieran formalmente las condiciones formales bajo las que funciones de producción microeconómicas con propiedades neoclásicas pudieran ser agregadas con el fi n de generar una función de producción agregagada. Esto es fundamental a la hora de justifi car la legitimidad de modelos teóricos neoclásicos, así como trabajos empíricos en el área de crecimiento (como, por ejemplo, la contabilidad del crecimiento, o las estimaciones econométricas de funciones agregadas de producción), los cuales dependen de la hipótesis de que la tecnología de la economía puede ser representada por una función de producción agregada (es decir, la hipótesis de que la función de producción agregada existe). La literatura sobre la agregación ha demostrado que las condiciones bajo las que una serie de funciones de producción microeconómicas pueden ser agregadas y así generar la función de producción agregada son tan sumamente restrictivas que es difícil creer que las economías reales las satisfacen. Estos resultados cuestionan la legitimidad de los modelos de crecimiento neoclásicos y sus implicaciones. La conclusión es que si la economía se precia de tener carácter cientifi co alguno no puede evolucionar bajo la premisa falsa de que las funciones de producción agregadas existen. Por ello, la profesión debería refl exionar antes de continuar desarrollando modelos de crecimiento teóricos de corte neoclásico y haciendo trabajo empírico sin fundamento teórico sólido.

Suggested Citation

  • Jesus Felipe & Franklin M. Fisher, 2006. "Aggregate production functions, neoclassical growth models and the aggregation problem/Funciones agregadas de producción, modelos neoclasicos de crecimiento y el problema de la agregación," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 24, pages 127-163, Abril.
  • Handle: RePEc:lrk:eeaart:24_1_3
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    References listed on IDEAS

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    More about this item

    Keywords

    Aggregate Production Function; Aggregation Problem; Aggregation Theorems/Funciones Agregadas de Producción; Problema de la Agregación; Teoremas de Agregación.;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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