Abstract
Many growth models assume that aggregate output is generated by a Cobb-Douglas production function. In this article we question the empirical relevance of this specification. We use a panel of 82 countries over a 28-year period to estimate a general constant-elasticity-of-substitution (CES) production function specification. We find that for the entire sample of countries we can reject the Cobb-Douglas specification. When we divide our sample of countries up into several subsamples, we find that physical capital and human capital adjusted labor are more substitutable in the richest group of countries and are less substitutable in the poorest group of countries than would be implied by a Cobb-Douglas specification.
Similar content being viewed by others
References
Arrow, K. J., H. B. Chenery, B. S. Minhas, and R. M. Solow. (1961). “Capital-Labor Substitution and Economic Efficiency,” Review of Economics and Statistics 43, 225-250.
Azariadis, C. (1993). Intertemporal Macroeconomics. Cambridge, MA: Blackwell.
Azariadis, C. (1996). “The Economics of Poverty Traps Part One: Complete Markets,” Journal of Economic Growth 1, 449-486.
Barro, R. J., and X. Sala-i-Martin. (1995). Economic Growth. New York: McGraw Hill.
Bencivenga, V. R., and B. D. Smith. (1997). “Unemployment, Migration and Growth,” Journal of Political Economy 105, 582-608.
Benhabib, J., and M. M. Spiegel. (1994). “The Role of Human Capital in Economic Development: Evidence from Aggregate Cross-Country Data,” Journal of Monetary Economics 34, 143-173.
Bils, M., and P. Klenow. (1996). “Does Schooling Cause Growth or the Other Way Around?” Working Paper, University of Rochester.
Boldrin, M. (1992). “Dynamic Externalities, Multiple Equilibria and Growth,” Journal of Economic Theory 58, 198-218.
Boskin, M. J., and L. J. Lau. (1992). “International and Intertemporal Comparison of Productive Efficiency: An Application of the Meta-Production Function Approach to the Group-of-Five (G-5) Countries,” Economic Studies Quarterly 43, 298-312.
Caselli, F., G. Esquivel, and F. Lefort. (1996). “Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics,” Journal of Economic Growth 1, 363-389.
Cass, D. (1965). “Optimum Growth in an Aggregate Model of Capital Accumulation,” Review of Economic Studies 32, 233-240.
Chenery, H., S. Robinson, and M. Syrquin. (1986). Industrialization and Growth. New York: Oxford University Press.
Coe, D. T., and E. Helpman. (1997). “International R&D Spillovers,” European Economic Review 39, 859-887.
Diamond, P. A. (1965). “National Debt in a Neoclassical Growth Model,” American Economic Review 55, 1126-1150.
Duffy, J., and C. Papageorgiou. (1999). “Factor Substitutability and Economic Growth.” Working Paper, Louisiana State University.
Durlauf, S., and P. Johnson. (1995). “Multiple Regimes and Cross-Country Growth Behavior,” Journal of Applied Econometrics 10, 365-384.
Engel, R. F., and C. W. J. Granger. (1987). “Cointegration and Error Correction: Representation, Estimation and Testing,” Econometrica 55, 251-276.
Galor, O. (1996a). “Convergence? Inferences from Theoretical Models,” Economic Journal 106, 1056-1069.
Galor, O. (1996b). Club Convergence, Brown University.
Gollin, D. (1998). “Getting Income Shares Right: Self-Employment, Unincorporated Enterprise, and the Cobb-DouglasHypothesis.” Working Paper, Williams College.
Green, W. (1990). Econometric Analysis. New York: Macmillan.
Greenwood, J., and M. Yorukoglu. (1997). “1974,” Carnegie-Rochester Conference Series on Public Policy 46, 49-95.
Griliches, Z. (1969). “Capital-Skill Complementarity,” Review of Economics and Statistics 51, 465-468.
Griliches, Z., and J. A. Hausman. (1986). “Errors in Variables in Panel Data,” Journal of Econometrics 31, 93-118.
Hall, R., and C. I. Jones. (1999). “Fundamental Determinants of Output PerWorker Across Countries,” Quarterly Journal of Economics 114, 83-116.
Islam, N. (1995). “Growth Empirics: A Panel Data Approach,” Quarterly Journal of Economics 110, 1127-1170.
Jones, C. I. (1997). “Convergence Revisited,” Journal of Economic Growth 2, 131-153.
Jones, L. E., and R. E. Manuelli. (1990). “A Convex Model of Equilibrium Growth: Theory and Policy Implications,” Journal of Political Economy 98, 1008-1038.
Jones, L. E., and R. E. Manuelli. (1992). “Finite Lifetimes and Growth,” Journal of Economic Theory 58, 171-197.
Jones, L. E., and R. E. Manuelli. (1997). “The Sources of Growth,” Journal of Economic Dynamics and Control 21, 75-114.
Kaldor, N. (1961). “Capital Accumulation and Economic Growth.” In F. A. Lutz, and D. C. Hague (eds.), The Theory of Capital. New York: St. Martin's Press.
Kmenta, J. (1967). “On Estimation of the CES Production Function,” International Economic Review 8, 180-189.
Koopmans, T. C. (1965). “On the Concept of Optimal Economic Growth.” In The Econometric Approach to Development Planning. Amsterdam: North-Holland.
Lichtenberg, F. R., and B. van Pottelsberghe de la Potterie. (1998). “International R&D Spillovers: A Comment,” European Economic Review 42, 1483-1491.
Lucas, R. E. (1988). “On the Mechanics of Economic Development,” Journal of Monetary Economics 22, 3-42.
Mankiw, N. G., D. Romer, and D. N. Weil. (1992). “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics 107, 407-437.
Nehru, V., and A. Dhareshwar. (1993). “A New Database on Physical Capital Stock: Sources, Methodology and Results” (in English), Revista de Análisis Econòmico 8, 37-59.
Nehru, V., E. Swanson, and A. Dubey. (1995). “A New Database on Human Capital Stock in Developing and Industrial Countries: Sources, Methodology and Results,” Journal of Development Economics 46, 379-401.
Newey, W. K., and K. D. West. (1987). A Simple Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix, Econometrica 55, 703-708.
Perron, P. (1989). “The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis,” Econometrica 57, 1361-1401.
Persson, T., and G. Tabellini. (1994). “Is Inequality Harmful for Growth?” American Economic Review 84, 600-621.
Pitchford, J. D. (1960). “Growth and the Elasticity of Substitution,” Economic Record 36, 491-504.
Prescott, E. C. (1998). “Needed: A Theory of Total Factor Productivity,” International Economic Review 39, 525-551.
Psacharopoulos, G. (1994). “Returns to Investment in Education: A Global Update,” World Development 22, 1325-1343.
Quah, D. (1996a). “Convergence Empirics Across Countries with (Some) Capital Mobility,” Journal of Economic Growth 1, 95-124.
Quah, D. (1996b). “Twin Peaks,” Economic Journal 106, 1045-1055.
Rebelo, S. (1991). “Long-Run Policy Analysis and Long-Run Growth,” Journal of Political Economy 99, 500-521.
Romer, P. M. (1986). “Increasing Returns and Long-Run Growth,” Journal of Political Economy 94, 1002-1037.
Romer, P. M. (1990). “Endogenous Technological Change,” Journal of Political Economy 98, part 2, 71-102.
Solow, R. M. (1956). “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, 65-94.
Solow, R. M. (1957). “Technical Change and the Aggregate Production Function,” Review of Economics and Statistics 39, 312-320.
Solow, R. M. (1958). “A Skeptical Note on the Constancy of Relative Shares,” American Economic Review 48, 618-631.
Stokey, N. L. (1996). “Free Trade, Factor Returns, and Factor Accumulation,” Journal of Economic Growth 1, 421-447.
Summers, R., and A. Heston. (1991). “The Penn World Tables (Mark 5): An Expanded Set of International Comparisons, 1950–1988,” Quarterly Journal of Economics 106, 327-368.
Tallman, E.W., and P. Wang. (1994). “Human Capital and Endogenous Growth: Evidence From Japan,” Journal of Monetary Economics 34, 101-124.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Duffy, J., Papageorgiou, C. A Cross-Country Empirical Investigation of the Aggregate Production Function Specification. Journal of Economic Growth 5, 87–120 (2000). https://doi.org/10.1023/A:1009830421147
Issue Date:
DOI: https://doi.org/10.1023/A:1009830421147