Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution

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Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution

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Title: Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution
Author: Antras, Pol
Citation: Antras, Pol. 2004. Is the U.S. aggregate production function Cobb-Douglas? New estimates of the elasticity of substitution. Contributions to Macroeconomics 4(1): article 4.
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Abstract: I present new estimates of the elasticity of substitution between capital and labor using data from the private sector of the U.S. economy for the period 1948-1998. I first adopt Berndt’s (1976) specification, which assumes that technological change is Hicks neutral. Consistently with his results, I estimate elasticities of substitution that are not significantly different from one. I next show, however, that restricting the analysis to Hicks-neutral technological change necessarily biases the estimates of the elasticity towards one. When I modify the econometric specification to allow for biased technical change, I obtain significantly lower estimates of the elasticity of substitution. I conclude that the U.S. economy is not well described by a Cobb-Douglas aggregate production function. I present estimates based on both classical regression analysis and time series analysis. In the process, I deal with issues related to the nonsphericality of the disturbances, the endogeneity of the regressors, and the nonstationarity of the series involved in the estimation.
Published Version: http://dx.doi.org/10.2202/1534-6005.1161
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3196325

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  • FAS Scholarly Articles [7106]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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