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An argument against Cobb-Douglas production functions (in multi-sector growth modeling)

Denis Stijepic

Economics Bulletin, 2017, vol. 37, issue 2, 1143-1150

Abstract: Recent growth literature deals with long run cross-sector labor allocation dynamics in multi-sector growth models. We analyze what the adequate assumptions regarding the sectoral production functions in this type of (very long run) model are. By employing an axiomatic/geometrical approach, we demonstrate that the basic stylized facts of long run sector and aggregate dynamics and the standard theory axioms are not consistent with the assumption of Cobb-Douglas production functions at the sector level. This result can be regarded as an empirical rejection of the Cobb-Douglas production function (at the sector level) on the basis of very long run, qualitative data.

Keywords: Cobb-Douglas; production function; labor income share; sectors; long run; structural transformation; geometric; axiomatic (search for similar items in EconPapers)
JEL-codes: O4 (search for similar items in EconPapers)
Date: 2017-05-25
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