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Aggregate Production Functions and the Measurement of Infrastructure Productivity: A Reassessment

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  • Jesus Felipe

    (Georgia Institute of Technology)

Abstract

This paper revisits the conundrum surrounding the measurement of the impact of public infrastructure spending in the light of the aggregation literature (Fisher, 1969; 1993). It shows why estimations of aggregate production functions (APFs) augmented with a proxy for public expenditures do not yield an estimate that can be interpreted as the productivity of public infrastructure. The reason is that underlying all APFs is the accounting identity that relates value added to the wage bill plus overall profits. This identity can be rewritten as a mathematical form that resembles a production function. Therefore, the estimated coefficients cannot be taken to be the structural parameters of a production function. The paper also offers a brief discussion of the productivity puzzle.

Suggested Citation

  • Jesus Felipe, 2001. "Aggregate Production Functions and the Measurement of Infrastructure Productivity: A Reassessment," Eastern Economic Journal, Eastern Economic Association, vol. 27(3), pages 323-344, Summer.
    • Handle: RePEc:eej:eeconj:v:27:y:2001:i:3:p:323-344
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/eeconj/Volume27/V27N3P323_344.pdf
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    Citations

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    Cited by:

    1. Felipe, J., 2003. "Sustainable development: a comment," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 21, pages 575-581, December.
    2. Raul Barreto, 2003. "A Model of State Infrastructure with Decentralized Public Agents: Theory and Evidence," Centre for International Economic Studies Working Papers 2003-07, University of Adelaide, Centre for International Economic Studies.
    3. Gennady Bilych, 2013. "Marx¡¯s Labor Theory of Value. Misleading or Truth?," Business and Economic Research, Macrothink Institute, vol. 3(1), pages 212-226, June.
    4. Dennis O. Kundisch & Neeraj Mittal & Barrie R. Nault, 2014. "Research Commentary —Using Income Accounting as the Theoretical Basis for Measuring IT Productivity," Information Systems Research, INFORMS, vol. 25(3), pages 449-467, September.
    5. Jesus Felipe & John McCombie, 2010. "On Accounting Identities, Simulation Experiments and Aggregate Production Functions: A Cautionary Tale for (Neoclassical) Growth Theorists," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 9, Edward Elgar Publishing.

    More about this item

    Keywords

    Aggregate Production Functions; Expenditure; Infrastructure; Production Function; Production; Public Expenditure;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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