|
HKUST Institutional Repository >
Social Science >
SOSC Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/1783.1/1154
|
| Title: | On production functions, technical progress, and time trends |
| Authors: | Felipe, Jesus
Holz, Carsten A. |
| Keywords: | Accounting identity
Cobb-Douglas production function
Random walk
Spurious regression
Trend stationary process |
| Issue Date: | 24-Dec-1997 |
| Series/Report no.: | Working Papers in the Social Sciences ; No. 34 |
| Abstract: | This paper analyzes why the estimation of the aggregate Cobb-Douglas production function usually yields good fits, parameter estimates consistent with actual shares of total product received by capital and labor, and approximately constant returns to scale, as well as why the estimation of the marginal productivity condition of labor often results in a good approximation of wages. We show that if factor shares and the growth rates of wages and of the profit rate are constant over time, then fitting a Cobb-Douglas production function with an exponential time trend amounts to estimating an accounting identity. The marginal productivity condition likewise follows directly from the accounting identity. Monte Carlo simulations explore the degree to which factor shares and the growth rates of wages and of the profit rate have to vary for the estimation of the “Cobb-Douglas production function” (accounting identity) to no longer yield an appropriate approximation of the economy. Our results suggest that successful Cobb-Douglas production function estimations carry no implications for such issues as technical progress, perfect competition, and profit maximization. |
| URI: | http://hdl.handle.net/1783.1/1154 |
| Appears in Collections: | SOSC Working Papers
|
Files in This Item:
| File |
Description |
Size | Format |
|---|
| sosc34.pdf | | 3061Kb | Adobe PDF | View/Open |
|
All items in this Repository are protected by copyright, with all rights reserved.
|
