Aggregate Production Functions and the Accounting Identity Critique: Further Reflections on Temple’s Criticisms and Misunderstandings

Levy Economics Institute, Working Papers Series

22 Pages Posted: 11 May 2012

See all articles by Jesus Felipe

Jesus Felipe

Asian Development Bank

John McCombie

University of Cambridge - Department of Land Economy

Date Written: May, 10 2012

Abstract

In a reply to Felipe and McCombie (2010a), Temple (2010) has largely ignored the main arguments that underlie the accounting identity critique of the estimation of production functions using value data. This criticism suggests that estimates of the parameters of aggregate production functions cannot be regarded as reflecting the underlying technology of the industry. While Temple concedes some points, he erroneously believes that the critique holds only under some ad hoc assumptions. As a consequence, he argues that the critique works only “part-time.” This rejoinder discusses Temple’s arguments and demonstrates that the critique works full-time.

Keywords: Accounting Identity, Aggregate Production Function, Aggregation Problems, Value-added Identity, Value Data

JEL Classification: C43, O11, O16, O47, O53

Suggested Citation

Felipe, Jesus and McCombie, John S. L., Aggregate Production Functions and the Accounting Identity Critique: Further Reflections on Temple’s Criticisms and Misunderstandings (May, 10 2012). Levy Economics Institute, Working Papers Series, Available at SSRN: https://ssrn.com/abstract=2055788 or http://dx.doi.org/10.2139/ssrn.2055788

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

John S. L. McCombie

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

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