‘Not Even Wrong’
Chapter 5: Solow’s ‘Technical Change and the Aggregate Production Function’, and the accounting identity
After the initial poor reception that Cobb and Douglas’s work received and which was discussed in the last chapter, it was only Douglas with his various colleagues in the 1930s and 1940s who continued to express any interest in the empirical applications of the aggregate production function. It was not until the mid- 1950s, with the seminal papers of Solow (1956, 1957) and Swan (1956) that the concept of the aggregate production function became an essential tool in both theoretical and applied analyses of economic growth. (In the 1960s it also became widely used in the short-run analysis of unemployment in the labour market, providing the foundations for the demand for labour function and the aggregate supply side of the neoclassical synthesis AD/AS model.) Since then there has been a plethora of studies estimating aggregate production functions. The recent interest in endogenous growth theory is also based on the aggregate production function and, paradoxically, has led to a revival of interest in the (augmented) Solow growth model (Mankiw et al., 1992).
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