Aggregate Production Function Research Articles

The Elasticity of Aggregate Output with Respect to Capital and Labor

It is often assumed that the elasticity of GDP with respect to capital is one-third, but this assumes zero markups and an aggregate production function. I estimate the elasticity allowing markups to vary by industry and with a rich input-output structure. Assumptions about capital costs provide bounds on elasticity. In the United States from 1948–1995, the capital elasticity ranged from 0.19–0.32 and shifted to 0. 24–0.37 by 1996–2018. Excluding housing or decapitalizing intellectual property lowers bounds to as low as 0. 11–0.26. Based on these elasticities, common estimates of total factor productivity growth represent a lower bound. (JEL E13, E22, E23, E25, N12)

Indonesian SDGS Problems: Technical Inefficiency Due to Economic Crime and Income Inequality

Objective: The study objective is investigating the technical inefficiency resulted from economic crime and its association with income inequality, with the study aims are modeling a stochastic frontier aggregate production function, measuring inefficiency, and mapping the economic inefficiency due to economic crime with income inequality association. Theoretical Framework: The main concepts are Crime Economics, Stochastic Frontier Analysis, and Aggregate Production Function. Method: The methodology comprises a stochastic frontier aggregate production function modelling to calculate technical inefficiency due to economic crime and mapping technical inefficiency due to economic crime with income inequality association. The data is Indonesian provincial data from 2016 to 2019 provided by Indonesian Statistics. Results and Discussion: The modelling reveals that aggregate production stochastic frontier is established and technical inefficiency due to economic crime is calculated. The mapping shows that some provinces experience positive association between technical inefficiency due to economic crime with income inequality. Research Implications: This study implies the importance of concerning theoritically and practically to technical inefficiency due to economic crime and its association with income inequality. These implication can encompass economic, social, and security sectors. Originality/Value: This study contributes to the literature by modeling the stochastic frontier aggregate production function that accommodates economic crime, measuring technical inefficiency due to economic crime, and mapping the technical inefficiency due to the economic crime with income inequality association. The relevance and value of this research are evidenced by SDGs components such as decent work and economic growth, reduced inequalities, and peace, justice, and strong institutions.

What if? The macroeconomic and distributional effects for Germany of a stop of energy imports from Russia

AbstractThis paper discusses the economic effects of a potential cut‐off of the German economy from Russian energy imports. We use a multi‐sector open‐economy model and a simplified approach based on an aggregate production function to estimate the effects of a shock to energy inputs. We show that the effects are likely to be substantial but manageable because of substitution of energy imports and reallocation along the production chain. In the short run, a stop of Russian energy imports would lead to an output loss relative to the baseline situation, without the energy cut‐off, in the range 0.5% to 3% of GDP.

Business cycles in Colombia: stylized facts

The purpose of this article is to examine the economic cycles in Colombia and to empirically corroborate the fulfillment of nine stylized facts documented in the specialized international literature. For this purpose, the retropolated series 1975-2013 and the series 2005:1-2022:4 of the National Administrative Department of Statistics (DANE) were analyzed using the Hodrick-Prescott filter. Thus, the occurrence of four economic cycles is recorded between 1975 and 2013 with an average duration of 9.3 years with an expansionary phase of 5.0 years and a contractionary phase of 5.3 years. Similarly, between 2005:1 and 2022:4 there were three cycles with an average duration of 21.7 quarters, with an expansionary phase of 14.7 quarters and a contractionary phase of 7.0 quarters. It should also be said that the cyclical fluctuations of employment and unemployment are closely related to effective demand and domestic demand in accordance with Keynesian theory; for example, the positive correlation between the real GDP cycle and the implicit GDP deflator cycle suggests that the cycles were not due to shifts in the aggregate production function as the dominant theory stresses, but to shifts in the aggregate demand function.

From Malthusian stagnation to modern economic growth: a swarm-intelligence perspective

The correlation between decentralized decision-making and swarm intelligence has emerged as a significant subject within self-organization phenomena. Here, we demonstrate that, if an exponential probability distribution of income emerges in a decentralized economic system, then the total income of all agents can be represented by an aggregate production function, in which the technology factor precisely aligns with the information content inherent in the event of decentralized decision-making by all agents. In particular, for sufficiently large population sizes, the emergence of this technology factor enables the income per capita to increase with the population size, akin to a manifestation of swarm intelligence. More importantly, we find that an exponential probability distribution of income can be generated within a peer-to-peer economy governed by specific game rules, characterizing a decentralized-decision economic system. Building upon this discovery, we propose a swarm-intelligence explanation to elucidate the transition from thousands of years of Malthusian stagnation to modern economic growth.

What can we learn from industry-level (aggregate) production functions?

ABSTRACT Recent work has revived two intertwined challenges to aggregate production functions (the ‘identity’ and ‘aggregation’ problems). This paper examines both problems in the context of aggregate industry-by-country analysis, first demonstrating the relevance of the identity problem for industry-level analysis and tracing its origin in the System of National Accounts. Using a case study of materials quality in global forestry and logging, the paper then compares estimates from fully physical versus conventional (monetary) production functions to isolate the aggregation problem and show that credible inference depends on appropriately modelling heterogeneity in production processes. Materials quality is measured via finite mixture modelling applied to global satellite data. Attempting to estimate the parameters of a common production technology yields poor results, because of differences in production processes between countries. The paper offers a practical approach for dealing with heterogeneity via Data Envelopment Analysis and heterogeneous coefficient panel estimators, and concludes with guidance to help applied industry-level analysis recognize and avoid both the identity and aggregation problems.

Assessing the economic impact of mobile telecommunications in Egypt: a structural model approach

PurposeThe purpose of this study is to use the structural model to determine the influence of mobile telecommunication on Egypt’s economic growth from 2000 to 2009. By focusing on mobile unique subscribers and mobile broadband-capable device penetration as indicators of telecommunications adoption, the authors seek to understand their overarching effects on the nation’s economic landscape.Design/methodology/approachThe paper uses quarterly time-series data set over the period 2000–2019 and uses a structural econometric model based on an aggregate production function, a demand function, a supply function and an infrastructure function to detect causality and examine long-run relationships between variables.FindingsThe findings of the structural model reveal that both mobile unique subscribers and mobile broadband-capable device penetration significantly contributed to Egypt’s gross domestic product (GDP) growth from 2000 to 2019. Specifically, a 1% increase in mobile unique subscriber penetration and mobile broadband-capable device adoption is estimated to result in an average annual contribution to GDP growth of 0.172% and 0.016%, respectively.Research limitations/implicationsThe scarcity of panel data is the main research limitation for comparative study with other Middle East and North African Region (MENA) countries. Research extensions would include testing the significance of complementarities such as improving governance measures and building human capacity for both households and firms, which are necessary to boost the impact of telecommunication on economic growth in the MENA region.Practical implicationsBased on these findings, the study puts forth policy recommendations aimed at maximizing investment in network utilization, including mobile and internet services, as well as fixed broadband subscriptions. It highlights the crucial role of these investments in promoting social and economic development, not only in Egypt but also across the MENA region as a whole.Social implicationsThe findings of this research emphasize the importance of strategic investments in network utilization, encompassing mobile, internet services and fixed broadband subscriptions. Such investments are pivotal for fostering social and financial inclusion. The study underscores the potential of these investments to drive social and economic progress, not just within Egypt but throughout the entire MENA region.Originality/valueOverall, existing literature generally supports the notion that the telecommunications sector has a positive economic impact. However, there is a gap in the literature when it comes to understanding the specific effects of the Egyptian telecommunications sector on the country’s economy, particularly in relation to the Egypt Vision 2030. The study aims to fill this gap by focusing specifically on Egypt and providing additional insights into the direct and indirect effects of the Egyptian telecommunications sector on the economy. By conducting a thorough analysis of the sector’s role, the authors aim to contribute to the existing literature by providing context-specific findings and recommendations.

The Aggregate Production Function and Solow’s 'Three Denials'

The Aggregate Production Function and Solow’s 'Three Denials'

Intelligent System of Estimation of Total Factor Productivity (TFP) and Investment Efficiency in the Economy with External Technology Gaps

This paper is the first to propose an aggregate S-trend factor production function to estimate total factor productivity (TFP) and investment efficiency in an economy. This function implements Charles R. Hulten's organizing principle: to what extent the growth of the economy is due to an increase in "productivity" (progress in technology and organization of production) and to what extent to "capital formation" (increased investment in human capital, knowledge and fixed capital). Estimation of future members of the series is usually done by a forecast model. It is a model that approximates a trend. The Verhulst's S-curve is used as the approximation function. Here A, B ,a are the parameters that change the shape of the S-curve, u, m are the parameters that change the position of the S-curve in the first quarter, t≥0. By aggregate S-trend production function we mean a two factor production function of the form z(t)= Here the function It represents the growth of the economy, which is by raw data and takes into account all influencing factors, and is certainly broader than the concept of " capital formation ", is a total factor productivity TFP. The error of approximation is quantitatively measured by the MAPE criterion.

Profitability and factors affecting production of pond fish culture under NATP project in Tangail district of Bangladesh

Profitability and input use efficiency of pond fish culture was studied at farming systems Research and Development (FSRD) site, Atia, Tangail from July 2019 to June 2020. The average pond fish production was recorded at 2808 kg/ha/year with the highest yield from the medium farms (2940 kg/ha/year) and lowest yield from marginal farms (2624 kg/ha/year). The highest gross return (Tk 352,800/ha) was found with medium farmers followed by small farmers (Tk 343,200/ha). The benefit cost ratio was also recorded higher (2.08) in marginal and small farms. Considering the aggregate production function for all groups of farmers, it was found that inorganic fertilizer, organic fertilizer, feed and human labour were statistically significant in explaining the variation in pond fish output but the results varied with different farm categories. Since there was positive correlation between input use and production of fish, it is probable that an increase in application of inputs could increase production further.

Optimal allocations in growth models with private information

This paper considers a class of growth models with idiosyncratic human capital risk and private information about individual effort choices (moral hazard). Households are infinitely-lived and have preferences that allow for a time-additive expected utility representation with a one-period utility function that is additive over consumption and effort as well as logarithmic over consumption. Human capital investment is risky due to idiosyncratic shocks that follow a Markov process with transition probabilities that depend on effort choices. The production process is represented by an aggregate production function that uses physical capital and human capital as input factors. We show that constrained optimal allocations are simple in the sense that individual effort levels and individual consumption growth rates are history-independent. Further, constrained optimal allocations are the solutions to a recursive social planner problem that is simple in the sense that exogenous shocks are the only state variables. We also show that constrained optimal allocations can be decentralized as competitive equilibrium allocations of a market economy with a simple tax- and transfer scheme. Finally, it is always optimal to subsidize human capital investment in the market economy.

Substitutability between older and younger workers and its implications for Japan

PurposeThis study investigates the impact of the increasing proportion of older workers in the workforce by establishing a theoretical framework and estimating the degree of substitutability between them and their younger counterparts.Design/methodology/approachThe first step is to establish a theoretical framework that combines older and younger workers with imperfect substitutability in the production of final goods within an aggregate production function. The author then derives an equation that relates the relative wage, relative supply and elasticity of substitution between the worker types, for use in estimation. Using data from Japan’s Basic Survey on Wage Structure and Population Census from 2010 to 2019 across 47 prefectures, the author estimates the elasticity of substitution between older and younger workers in Japan.FindingsThe author finds that workers aged 55 and over and their younger counterparts are gross substitutes, and the estimated elasticity of substitution is in the range of 2.33–2.86. This implies that a 10% increase in the relative number of workers aged 55 and older leads to a fall in their relative wage in the range of 3.5–4.3%. The study estimations suggest that since 2010, there has been a convergence in the relative wage of older workers across Japan’s prefectures.Originality/valueUnderstanding the degree of substitutability between older and younger workers is essential for quantitatively assessing the impact of workforce aging, technological advancements and labor policies on the wage distribution. This study estimates the elasticity of substitution between the two worker types based on a theoretical model, and utilizes recent datasets and methodology not adequately addressed in previous literature.

Automation and economic growth in a task‐based neoclassical growth model

AbstractThis paper incorporates a task‐based approach into the Solow growth model to analyze the effects of automation on economic growth. We find that if task producers smoothly adopt automation technology along the capital accumulation path, sustained growth is possible even without technological progress. This result is brought about by the fact that task automation makes the aggregate production function linear. In addition, we demonstrate that both the rental price of capital and the wage are constant on the growth path. In sum, while the interaction between task automation and capital accumulation can be a pathway for sustained growth in output, it leads to the cease of wage growth in the long run.

A Nexus Among Technology Input, Research Activity, Innovation, and Economic Growth: A vis-à-vis Analysis between Asia and Europe

This study attempts to analyze the influence of technological infrastructure development and the spill-over effect of dynamic growth of technological innovation on the Asian and European economies. Compared to European countries, the economic infrastructure of Asian countries has transformed significantly during the last three decades. Technological progress and higher growth of available engineers and researchers have become pivotal endogenous determinants in the aggregate production function and eventually became the key drivers of economic growth. Compared to European countries, rapid investment in technology import and a higher number of technologically competent available workforce galvanized uplifted and speedy productivity rates, causing positive economic growth in the Asian economy. The interrelation between technological progress and economic growth is summarized and analyzed by using quantitative methods. The paper stu­dies the nexus between technological progress, the availability of engineers and researchers, and economic growth by applying the dynamic Generalised Method of Moments (GMM) method to the available quantitative data (2013-2017) of chosen Asian and European countries. The econometric results show a significant effect of technological progress and innovation on economic growth. The empirical insight is of particular interest to policymakers as it helps to enhance internal and external technology and innovation development policies for sustainable economic growth in Asian and European countries.

Smallholders Are Not the Same: Under the Hood of Kosovo Agriculture

Economists and policy makers are interested in producers’ responses to policies in order to achieve some national or sectoral objectives, e.g., growth, employment, food security. The way producers respond to policy depends on their production function. If producers do not have homogenous production function, policy responses will be heterogeneous. We use the underlying functional relationship to derive homogenous groupings. The paper employs finite regression mixture models to specify and estimate farm groups with regard to pre-specified functional relationship. The proposed approach is illustrated with regard to the aggregate production function of Kosovo agriculture, characterised by high prevalence of small farmers. The results point out to two farm clusters. The first one extracts more output from labour and intermediate consumption. The second one makes a better use of land. Perhaps, surprisingly, both clusters appear quite similar in terms of their stock of production inputs. Cluster 1 however appears to be more specialised. We can conclude that in Kosovo agriculture appearances and size are not primary determinants of productivity.

ВЛИЯНИЕ ИНВЕСТИРОВАНИЯ В ОСНОВНОЙ КАПИТАЛ НА СОЦИАЛЬНОЭКОНОМИЧЕСКОЕ РАЗВИТИЕ РЕГИОНА

The article analyzes the problem of the development of regions as socio-economic systems under the influence of the factor of investment in fixed assets. Using the example of the Central Federal District regions, the differences between regions in the level of per capita GDP by region are investigated, depending on the per capita investment in fixed assets. The article concludes that there is a need for economic justification of regional and interregional investment programs based on the aggregated production function of the region, which allows a differentiated approach to each region depending on the current conditions of its development.

Alternative specifications of human capital in production functions

In this paper we argue that some empirical specifications may not be appropriate to estimate accurately the returns to human capital. In particular, we show that the inclusion in aggregate production functions of the ratio of skilled labor force over total labor force as a proxy for human capital may not be a good way to control for the heterogeneity of labor.

Construction of an aggregated production function with implementation based on the example of the regions of the Central Federal District of the Russian Federation

A three-dimensional case is considered on the basis of a method developed for estimating the parameters of the aggregated production function used to calculate dynamic standards and build integral indicators of the performances of the functioning of socio-economic systems. The aggregated production function is determined by the quadratic convolution of the production functions of the results of the functioning of the elements of the subsystem and their correlation matrix. The parameters of the aggregated production function are determined from solving the problem of maximizing the likelihood function of a random variable – the residuals of production functions aggregated according to a similar rule. On the example of a project subsystem within the framework of the Kleiner’s spatial-temporal classification of socio-economic systems we obtained adjusted values of the parameters of a function that includes power-law multiplicative models of the relationship between the volume of gross domestic product by region for sections F (construction), G (wholesale and retail trade), K (financial activity) according to NACE 2 and the cost of fixed assets (total for section K, for sections F and G), the average annual number of employees (for sections F and G) and the average annual population (for section K), based on data for 2015–2020 (sections G, K) and 2018–2020 (section F) for the regions of the Central Federal District. The EFRA software package and Python’s project were used as tools. The results obtained can be used by regional authorities in assessing the functioning of the regions and the formation of appropriate standards in the short term.

Combining aggregate production function and technical efficiency: Indonesian case study

Besides frontiers and Data Enveloped Analysis approaches, a combination between the aggregate production function and technical efficiency can be performed using the Corrected Ordinary Least Square approach. Unfortunately, there are no studies in Indonesia that use this approach. This paper mainly studies how the Corrected Ordinary Least Square approach combines aggregate production function and technical efficiency. The methods are aggregate production function modeling, aggregate production function correcting, and technical efficiency measuring. The data are Gross Regional Domestic Product at a constant price, the number of workers, investment expenditure, education, and health data of Indonesian provinces from 2015 to 2020. There are three results. First, the Indonesian fixed effect panel data aggregate production function is the best model. In this model, Gross Regional Domestic Product at a constant price is influenced by the number of workers, investment expenditure, and human capital. Human capital consists of education and health level. Second, the deterministic frontier aggregate production function shifts the best-fixed effect model so that the constant becomes –15.36. Third, the Indonesian technical efficiency when no factors influence inefficiency is on average 0.9936. All the results indicate that human capital, aggregate production and technical efficiency combination, and the Corrected Ordinary Least Square approach are practical values.

An Evolutionary Game to Model Offshoring and Reshoring of Production Between Developed and Developing Countries

A dynamic model is proposed to describe the time evolution of production location choices of a multinational enterprise that can decide between two possible manufacturing locations: a stylized developed economy and a developing economy. The model is based on an evolutionary approach according to a replicator dynamics driven by expected profits. The production in each country is determined by the availability of labor inputs and their relative productivity, on wages of skilled and unskilled workers, as well as on cost externalities due to knowledge spillovers and public goods availability. The model includes the effects of relative demand and supply on earnings distribution with two different types of workers (high and low skilled) and the substitution between the two categories is captured by a CES aggregate production function. Behavioral parameters are also considered, such as the cognitive bias that overestimates the convenience of offshoring in term of labor cost and the “made in” effect that brings consumers to pay higher prices for products manufactured in a developed country.