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

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  • Denis Stijepic

    (University of Hagen)

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.

Suggested Citation

  • Denis Stijepic, 2017. "An argument against Cobb-Douglas production functions (in multi-sector growth modeling)," Economics Bulletin, AccessEcon, vol. 37(2), pages 1143-1150.
    • Handle: RePEc:ebl:ecbull:eb-17-00103
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    References listed on IDEAS

    as
    1. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    2. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    3. Alvarez-Cuadrado, Francisco & Long, Ngo Van & Poschke, Markus, 2018. "Capital-labor substitution, structural change and the labor income share," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 206-231.
    4. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    5. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    6. Philippe Aghion & Steven Durlauf (ed.), 2014. "Handbook of Economic Growth," Handbook of Economic Growth, Elsevier, edition 1, volume 2, number 2.
    7. Stijepic, Denis, 2015. "A geometrical approach to structural change modelling," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 71-85.
    8. Frank A. Close & David E. Shulenburger, 1971. "Labor's Share by Sector and Industry, 1948–1965," ILR Review, Cornell University, ILR School, vol. 24(4), pages 588-602, July.
    9. Angus Maddison, 1995. "Explaining The Economic Performance Of Nations," Books, Edward Elgar Publishing, number 294.
    10. Foellmi, Reto & Zweimüller, Josef, 2008. "Structural change, Engel's consumption cycles and Kaldor's facts of economic growth," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1317-1328, October.
    11. Mr. Sergio Rebelo & Ms. Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 2001/085, International Monetary Fund.
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    Cited by:

    1. Stijepic, Denis, 2018. "Models of Continuous Dynamics on the 2-Simplex and Applications in Economics," MPRA Paper 86341, University Library of Munich, Germany.
    2. Stijepic, Denis, 2019. "A topological approach to structural change analysis and an application to long-run labor allocation dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 453-462.
    3. Stijepic, Denis, 2016. "Empirical evidence on the topological properties of structural paths and some notes on its theoretical explanation," MPRA Paper 82473, University Library of Munich, Germany, revised 26 Oct 2017.
    4. Stijepic, Denis, 2018. "A contribution to the qualitative, interdisciplinary modeling of environmental development," MPRA Paper 88953, University Library of Munich, Germany, revised 12 Sep 2018.
    5. Stijepic, Denis, 2017. "Empirical evidence on the geometrical properties of structural change trajectories," MPRA Paper 80854, University Library of Munich, Germany, revised 17 Aug 2017.
    6. Damir Stijepic, 2019. "The impact of the productivity dispersion across employers on the labor's income share," Economics Bulletin, AccessEcon, vol. 39(1), pages 73-83.
    7. Martina Novotná & Ivana Faltová Leitmanová & Jiří Alina & Tomáš Volek, 2020. "Capital Intensity and Labour Productivity in Waste Companies," Sustainability, MDPI, vol. 12(24), pages 1-15, December.

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    More about this item

    Keywords

    Cobb-Douglas; production function; labor income share; sectors; long run; structural transformation; geometric; axiomatic;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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