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The Aggregate Production Function: 'Not Even Wrong'

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  • J. Felipe
  • J.S.L. McCombie

Abstract

The foundations of the aggregate production function were long ago thrown into doubt by problems of aggregation and the Cambridge capital theory controversies. Yet the aggregate production function, whether in the familiar form of the Cobb-Douglas, the CES, or the translog, continues to be widely used in both theoretical and applied analysis. The reason for its continued use rests on the instrumental position that 'it works'. The aggregate production function sometimes yields good statistical fits with plausible estimates of the coefficients. However, for some time, it has been realised that the existence of an underlying accounting identity can explain the regression results, even if the aggregate production function does not exist. This argument has been widely ignored. This paper, drawing on a rhetorical approach, assesses why this is the case. It shows that the few criticisms that have been made of the critique involve fundamental misunderstandings that represent a failure of the economic method.

Suggested Citation

  • J. Felipe & J.S.L. McCombie, 2014. "The Aggregate Production Function: 'Not Even Wrong'," Review of Political Economy, Taylor & Francis Journals, vol. 26(1), pages 60-84, January.
    • Handle: RePEc:taf:revpoe:v:26:y:2014:i:1:p:60-84
    DOI: 10.1080/09538259.2013.874192
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    References listed on IDEAS

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    1. Kincaid, Harold & Ross, Don (ed.), 2009. "The Oxford Handbook of Philosophy of Economics," OUP Catalogue, Oxford University Press, number 9780195189254, Decembrie.
    2. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.
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    Cited by:

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    7. Remzi Baris Tercioglu, 2020. "A sectoral approach to measuring output gap: Evidence from 20 US sectors over 1948-2019," Working Papers 2012, New School for Social Research, Department of Economics, revised Jun 2021.
    8. Philipp Heimberger, 2016. "Das "strukturelle Defizit" in der österreichischen Budgetpolitik: Berechnungsprobleme, Revisionen und wirtschaftspolitische Relevanz," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 42(3), pages 451-463.
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