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What is wrong with aggregate production functions. On Temple's 'aggregate production functions and growth economics'

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  • Jesus Felipe
  • J. S. L. McCombie

Abstract

In an article in the 2006 volume of this journal, Jonathan Temple presented a defence of the use of the aggregate production function in growth theory in the light of various criticisms that have been levelled at it. These criticisms include the Cambridge Capital Theory Controversies, various aggregation problems, and the problems posed by the use of value data and the underlying accounting identity. We show that Temple has underestimated the seriousness of these criticisms, especially the last one, which vitiates the concept of the aggregate production function. Because of the identity, estimates of putative aggregate production functions, such as the aggregate elasticity of substitution, cannot be interpreted as reflecting the underlying technology, and hence the use of the aggregate production function is extremely problematical.

Suggested Citation

  • Jesus Felipe & J. S. L. McCombie, 2010. "What is wrong with aggregate production functions. On Temple's 'aggregate production functions and growth economics'," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(6), pages 665-684.
  • Handle: RePEc:taf:irapec:v:24:y:2010:i:6:p:665-684
    DOI: 10.1080/02692171.2010.512146
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    Citations

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    Cited by:

    1. Yashin, Pete, 2016. "Кризис И Рост Неравенства. Оптимальный Путь Экономического Роста
      [The crisis and increasing inequality. The best equilibrium growth path]
      ," MPRA Paper 73544, University Library of Munich, Germany.
    2. Matthew K. Heun & João Santos & Paul E. Brockway & Randall Pruim & Tiago Domingos & Marco Sakai, 2017. "From Theory to Econometrics to Energy Policy: Cautionary Tales for Policymaking Using Aggregate Production Functions," Energies, MDPI, Open Access Journal, vol. 10(2), pages 1-44, February.
    3. Lo, Dic & Hong, Fuhai & Li, Guicai, 2016. "Assessing the role of inward foreign direct investment in Chinese economic development, 1990–2007: Towards a synthesis of alternative views," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 107-120.
    4. Paul E. Brockway & Matthew K. Heun & João Santos & John R. Barrett, 2017. "Energy-Extended CES Aggregate Production: Current Aspects of Their Specification and Econometric Estimation," Energies, MDPI, Open Access Journal, vol. 10(2), pages 1-23, February.

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