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Nonlinear Dynamics and Pseudo-Production Functions

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  • Anwar Shaikh

Abstract

Aggregate production functions are still widely used four decades after it was conceded that they could not be grounded in any plausible micro-foundations. This paper shows that aggregate production functions can always be made to work on any data that exhibits roughly constant wage shares, even when the underlying technology is non-neoclassical. But in so doing, they always pick up the accounting identity that underlies the data. This is demonstrated on both actual US data and a control data set derived from a fixed coefficient model with Harrod-neutral technical change and a persistent rate of unemployment. It is proved that one can generate an infinite number of fits, each of which gives a different reading of the rate of technical change. It follows that even when aggregate production functions appear to work at an empirical level, they provide no support for the neoclassical theory of aggregate production and distribution. On the contrary, the best of fits can utterly misrepresent the true underlying mechanisms of production, distribution, technical change, and growth.

Suggested Citation

  • Anwar Shaikh, 2005. "Nonlinear Dynamics and Pseudo-Production Functions," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 447-466, Summer.
    • Handle: RePEc:eej:eeconj:v:31:y:2005:i:3:p:447-466
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    References listed on IDEAS

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    Cited by:

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    2. Jamee K. Moudud, 2010. "Strategic Competition, Dynamics, and the Role of the State," Books, Edward Elgar Publishing, number 4241.
    3. Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
    4. Passas, Costas, 2023. "Standardized capital stock estimates for the Greek economy 1948–2020," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 236-244.
    5. Katherine A. Moos, 2019. "Neoliberal Redistributive Policy: The US Net Social Wage in the Early Twenty-First Century," Review of Radical Political Economics, Union for Radical Political Economics, vol. 51(4), pages 581-605, December.
    6. Iwo Augustyński, 2016. "Skutki podniesienia kwoty wolnej od podatku od dochodów osobistych," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 55-71.
    7. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.
    8. Jesus Felipe & John McCombie, 2012. "Aggregate Production Functions and the Accounting Identity Critique: Further Reflections on Temple's Criticisms and Misunderstandings," Economics Working Paper Archive wp_718, Levy Economics Institute.
    9. Tomáš Evan & Ilya Bolotov, . "Measuring Mancur Olson: What is the Influence of Culture, Institutions and Policies on Economic Development?," Prague Economic Papers, Prague University of Economics and Business, vol. 0.
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    11. Thomas Fredholm & Stefano Zambelli, 2013. "Production Functions Behaving Badly - Reconsidering Fisher and Shaikh," ASSRU Discussion Papers 1305, ASSRU - Algorithmic Social Science Research Unit.
    12. Villar Otálora, Juan Camilo, 2021. "Una revisión sobre los métodos convencionales de la contabilidad del crecimiento: La tiranía de la identidad [A review of the conventional methods of growth accounting: The tyranny of identity]," MPRA Paper 106683, University Library of Munich, Germany.

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