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The Structure Of Production Technology Productivity And Aggregation Effects

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  • Phoebus J Dhrymes

Abstract

This is a sequel to an earlier paper by the author, Dhrymes (1990). Using the LRD sample, that paper examined the adequacy of the functional form specifications commonly employed in the literature of US Manufacturing production relations. The "universe" of the investigation was the three digit product group; the basic unit of observation was the plant; the sample consisted of all "large" plants, defined by the criterion that they employ 250 or more workers. The study encompassed three digit product groups in industries 35, 36 and 38, over the period 1972-1986, and reached one major conclusion: if one were to judge the adequacy of a given specification by the parametric compatibility of the estimates of the same parameters, as derived from the various implications of each specification, then the three most popular (production function) specifications, Cobb-Douglas, CES and Translog all fell very wide of the mark. The current paper focuses the investigation on two digit industries (but retains the plant as the basic unit of observation), i.e., our sample consists of all "large" manufacturing plants, in each of Industry 35, 36 and 38, over the period 1972-1986. It first replicates the approach of the earlier paper; the results are basically of the same genre, and for that reason are not reported herein. Second, it examines the extent to which increasing returns to scale characterize production at the two digit level; it is established that returns to scale at the mean, in the case of the translog production function are almost identical to those obtained with the Cobb-Douglas function.1 Finally, it examines the robustness and characteristics of measures of productivity, obtained in the context of an econometric formulation and those obtained by the method of what may be thought of as the "Solow Residual" and generally designated as Total Factor Productivity (TFP). The major finding here is that while there are some differences in productivity behavior as established by these two procedures, by far more important is the aggregation sensitivity of productivity measures. Thus, in the context of a pooled sample, introduction of time effects (generally thought to refer to productivity shifts) are of very marginal consequence. On the other hand, the introduction of four digit industry effects is of appreciable consequence, and this phenomenon is universal, i.e., it is present in industry 35, 36 as well as 38. The suggestion that aggregate productivity behavior may be largely, or partly, an aggregation phenomenon is certainly not a part of the established literature. Another persistent phenomenon uncovered is the extent to which productivity measures for individual plants are volatile, while two digit aggregate measures appear to be stable. These findings clearly calls for further investigation.

Suggested Citation

  • Phoebus J Dhrymes, 1991. "The Structure Of Production Technology Productivity And Aggregation Effects," Working Papers 91-5, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:91-5
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    File URL: https://www2.census.gov/ces/wp/1991/CES-WP-91-05.pdf
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    References listed on IDEAS

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    1. Morrison, Catherine J., 1986. "Productivity measurement with non-static expectations and varying capacity utilization : An integrated approach," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 51-74.
    2. David E. Rose & Spencer Star, 1978. "Homotheticity and the Relationship between Plant Output and Factor Prices under Perfect Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 11(1), pages 92-97, February.
    3. Berndt, Ernst R, 1976. "Reconciling Alternative Estimates of the Elasticity of Substitution," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 59-68, February.
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    6. Fuss, Melvyn A. & Gupta, Vinod K., 1981. "A cost function approach to the estimation of minimum efficient scale, returns to scale, and suboptimal capacity : With an application to Canadian manufacturing," European Economic Review, Elsevier, vol. 15(2), pages 123-135.
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    Cited by:

    1. Pinar Celikkol Geylani & Spiro Stefanou, 2011. "Productivity growth patterns in US dairy products manufacturing plants," Applied Economics, Taylor & Francis Journals, vol. 43(24), pages 3415-3432.
    2. Douglas W Dwyer, 1995. "Technology Locks, Creative Destruction And Non-Convergence In Productivity Levels," Working Papers 95-6, Center for Economic Studies, U.S. Census Bureau.
    3. John Thanassoulis, 2005. "List Prices, Bargaining and Resultant Productivity Diffusion Delay," Economics Series Working Papers 220, University of Oxford, Department of Economics.
    4. Robert Breunig & Marn-Heong Wong, "undated". "Australia's firm-level productivity -- a new perspective," Australasian Stata Users' Group Meetings 2004 2, Stata Users Group.
    5. Pinar Celikkol & Spiro Stefanou, 2004. "Productivity Growth Patterns in U.S. Food Manufacturing: Case of Dairy Products Industry," Working Papers 04-08, Center for Economic Studies, U.S. Census Bureau.
    6. Peter Klenow, 1998. "Learning Curves and the Cyclical Behavior of Manufacturing Industries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 531-550, April.
    7. Loof, Hans & Heshmati, Almas, 2002. "Knowledge capital and performance heterogeneity: : A firm-level innovation study," International Journal of Production Economics, Elsevier, vol. 76(1), pages 61-85, March.
    8. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    9. Douglas Dwyer, 1998. "Technology Locks, Creative Destruction, and Non-Convergence in Productivity Levels," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 430-473, April.
    10. Stefanou, Spiro E., 2009. "A Dynamic Characterization of Efficiency," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 0(Issue 1), pages 1-16.
    11. Pinar Celikkol & Spiro Stefanou, 2004. "Productivity Growth Patterns in U.S. Food Manufacturing: Case of Meat Products Industry," Working Papers 04-04, Center for Economic Studies, U.S. Census Bureau.
    12. repec:cvs:starer:9724 is not listed on IDEAS
    13. Raies, Asma & Ben Mimoun, Mohamed, 2009. "Le mécanisme de sélection des firmes est-il efficace? Une approche en termes de coût d’opportunité," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(2), pages 183-207, juin.

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