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The Illusions of Calculating Total Factor Productivity and Testing Growth Models: From Cobb–Douglas to Solow and Romer

Publication | October 2019
The Illusions of Calculating Total Factor Productivity and Testing Growth Models: From Cobb–Douglas to Solow and Romer

This paper shows why aggregate production functions seem to work empirically.

Aggregate production functions yield high fits and factor elasticities close to the corresponding factor shares because they are approximations to an accounting identity. Authors show through a series of examples why one learns little from the neoclassical growth literature published during the last 6 decades.

Contents 

  • Introduction
  • Statement of the Problem
  • The Cobb-Douglas Production Function and Solow's Ingenious Estimation Procedure
  • Recent Growth Accounting Controversies: The Illusion of Calculating Total Factor Productivity
  • What Do Production Function Regressions Tell Us? The Illusions of Testing (I)
  • The Illusion of Testing (II)
  • Final Thoughts: Is This Science?