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

Jesus Felipe () and John McCombie

International Review of Applied Economics, 2010, vol. 24, issue 6, 665-684

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.

Keywords: aggregate production function; growth econometrics; aggregation problems; accounting identity (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1080/02692171.2010.512146

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