Can the Marginal Productivity Theory of Distribution be Tested?

This paper shows why attempts to test the neoclassical aggregate marginal productivity theory of distribution are inherently flawed. The use of constant-price value data and an underlying accounting identity mean that the close correspondence often found between the “output elasticities” of a putative aggregate production function and the relevant factor shares is a mere statistical artefact. Likewise, the results of estimating neoclassical labor demand functions must, for the same reason, always give spurious results. The authors received no financial support for the research, authorship and/or publication of this article.This is the accepted manuscript. The final version is available from Sage at http://rrp.sagepub.com/content/47/2/274.abstrac

Adherence of community caretakers of children to pre-packaged antimalarial medicines (HOMAPAK(®)) among internally displaced people in Gulu district, Uganda

BACKGROUND: In 2002, home-based management of fever (HBMF) was introduced in Uganda, to improve access to prompt, effective antimalarial treatment of all fevers in children under 5 years. Implementation is through community drug distributors (CDDs) who distribute pre-packaged chloroquine plus sulfadoxine-pyrimethamine (HOMAPAK(®)) free of charge to caretakers of febrile children. Adherence of caretakers to this regimen has not been studied. METHODS: A questionnaire-based survey combined with inspection of blister packaging was conducted to investigate caretakers' adherence to HOMAPAK(®). The population surveyed consisted of internally displaced people (IDPs) from eight camps. RESULTS: A total of 241 caretakers were interviewed. 95.0% (CI: 93.3% – 98.4%) of their children had received the correct dose for their age and 52.3% of caretakers had retained the blister pack. Assuming correct self-reporting, the overall adherence was 96.3% (CI: 93.9% – 98.7%). The nine caretakers who had not adhered had done so because the child had improved, had vomited, did not like the taste of the tablets, or because they forgot to administer the treatment. For 85.5% of cases treatment had been sought within 24 hours. Blister packaging was considered useful by virtually all respondents, mainly because it kept the drugs clean and dry. Information provided on, and inside, the package was of limited use, because most respondents were illiterate. However, CDDs had often told caretakers how to administer the treatment. For 39.4% of respondents consultation with the CDD was their reported first action when their child has fever and 52.7% stated that they consult her/him if the child does not get better. CONCLUSION: In IDP camps, the HBMF strategy forms an important component of medical care for young children. In case of febrile illness, most caretakers obtain prompt and adequate antimalarial treatment, and adhere to it. A large proportion of malaria episodes are thus likely to be treated before complications can arise. Implementation in the IDP camps now needs to focus on improving monitoring, supervision and general support to CDDs, as well as on targeting them and caretakers with educational messages. The national treatment policy for uncomplicated malaria has recently been changed to artemether-lumefantrine. Discussions on a suitable replacement combination for HBMF are well advanced, and have raised new questions about adherence

Initial sequencing and analysis of the human genome

The human genome holds an extraordinary trove of information about human development, physiology, medicine and evolution. Here we report the results of an international collaboration to produce and make freely available a draft sequence of the human genome. We also present an initial analysis of the data, describing some of the insights that can be gleaned from the sequence.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/62798/1/409860a0.pd

How sound are the foundations of the aggregate production function?

The aggregate production function has been subject to a number of criticisms ever since its first empirical estimation by Cobb and Douglas in the 1920s, notably the problems raised by aggregation and the Cambridge Capital Theory Controversies. There is a further criticism due initially to Phelps Brown (and elaborated, in particular, by Simon and Shaikh) which is not so widely known. This critique is that because at the aggregate level only value data can be used to estimate production function, this means that the estimated parameters of the production function are merely capturing an underlying accounting identity. Hence, no reliance can be placed on estimates of, for example, the elasticity of substitution as reflecting technological parameters. The argument also explains why good statistical fits of the aggregate production functions are obtained, notwithstanding the difficulties posed by the aggregation problem and the Cambridge Capital Controversies noted above. This paper outlines and assesses the Phelps Brown critique and its extensions. In particular, it considers some possible objections to his argument and demonstrates that they are not significant. It is concluded that the theoretical basis of the aggregate production function is problematic.UnpublishedArrow, K.J. (1962), “Economic Welfare and the Allocation of Resources of Invention.” In R.R.Nelson (ed.), The Rate and Direction of Inventive Activity: Economic and Social Factors. Princeton NJ: NBER & Princeton University Press. Blaug, M. (1974), The Cambridge Revolution. Success or Failure? A Critical Analysis of Cambridge Theories of Value and Distribution. Eastbourne: Institute of Economic Affairs. Bronfenbrenner, M. (1944), "Production Functions: Cobb-Douglas, Interfirm, Intrafirm." Econometrica, vol. 12: 35-44. Cobb, C.W. and P.H. Douglas. (1928). “A Theory of Production.” American Economic Review, Supplement. vol. 18, pp.139-165. Cramer, J.S. (1969), Empirical Econometrics. Amsterdam: North-Holland. Denison, E. (1967), Why Growth Rates Differ: Postwar Experience in Nine Western Countries. Washington D.C.: The Brookings Institution. Douglas, P.H. (1944), “Are There Laws of Production?”, American Economic Review, vol. 38, pp.1-41. Douglas, P.H. (1976), “The Cobb-Douglas Production Function Once Again: Its History, Its Testing, and Some Empirical Values.” Journal of Political Economy, vol. 84, pp.903-115. Felipe, J. (2001a), “Endogenous Growth, Increasing Returns, and Externalities: An Alternative Interpretation of the Evidence”, Metroeconomica. (forthcoming). Felipe, J. (2001b), “Aggregate Production Functions and the Measurement of Infrastructure Productivity: A Reassessment”, Eastern Economic Journal (forthcoming) Felipe, J. and Adams, G. F. (2001), “ ‘A Theory of Production’. The Estimation of the Cobb-Douglas Function: A Retrospective View”, Georgia Institute of Technology and Northeastern University (mimeo). Felipe, J. and Holz, C. (2001), “Why do Production Functions Work? Fisher’s Simulations, Shaikh’s Identity and Some New Results”, International Review of Applied Economics (forthcoming) Felipe, J and McCombie, J.S.L. (2001), “The CES Production Function, the Accounting Identity and Occam’s Razor”, Applied Economics, Vol.33. pp.1221-1232. Felipe, J and McCombie J.S.L., (2001c), “Can Solow’s Growth Model be Tested? Some Methodological Concerns”, Georgia Institute of Technology & the University of Cambridge (mimeo). Felipe, J and McCombie, J.S.L. (2002a), “A Problem with Some Recent Estimations and Interpretations of the Mark-up in Manufacturing Industry”, International Review of Applied Economics, (forthcoming) Felipe, J. and McCombie, J.S.L. (2002b), “Methodological Problems with the Neoclassical Analyses of the East Asian Economic Miracle”, Cambridge Journal of Economics, (forthcoming) Ferguson, C.E. (1969), The Neoclassical Theory of Production and Distribution. Cambridge: Cambridge University Press (revised edition 1972). Ferguson, C.E. (1971), Capital Theory up to Date: A Comment on Mrs Robinson’s Article”, Canadian Journal of Economics, vol. IV, pp.250-254. Fisher, F.M. (1971), "Aggregate Production Functions and the Explanation of Wages: A Simulation Experiment." The Review of Economics and Statistics, vol. LIII, pp. 305-25. Fisher, F.M. (1987). "Aggregation Problems." In J. Eatwell, M. Milgate, and P. Newman (eds.), The New Palgrave. A Dictionary of Economics, pp.53-5. Basingstoke: Macmillan, Fisher, F.M. (1992), Aggregation. Aggregate Production Functions and Related Topics. (Monz, J., ed.). London: Harvester Wheatsheaf. Friedman, M. (1953), "The Methodology of Positive Economics." In Milton Friedman (ed.), Essays in Positive Economics. Chicago: Chicago University Press. Hahn, F. (1972), The Share of Wages in the National Income: An Enquiry into Distribution Theory, London: Weidenfeld and Nicholson. Hall R.E. (1988), “The Relation between Price and Marginal Cost in U.S. Industry”, Journal of Political Economy, vol. 96, pp. 921-947. Hall, R.E. (1990), “Invariance Properties of Solow's Productivity Residual”, in P. Diamond (ed.) Growth/Productivity/Employment, Cambridge, MA :MIT Press. Harcourt. G.C. (1972), Some Cambridge Controversies in the Theory of Capital. Cambridge: Cambridge University Press. Harcourt, G.C. (1982), The Social Science Imperialist. (P. Kerr, ed.) London: Routledge and Kegan Paul. Heathfield, D.F. and Wibe S. (1987), An Introduction to Cost and Production Functions. Basingstoke: Macmillan. Hildebrand, G. and Liu, T.C. (1965), Manufacturing Production Functions in the United States, 1957, Ithica, New York: Cornell University Press. Hill T.P. (1979), Profits and Rates of Return, Paris: OECD. Houthakker H.S. (1955-56), “The Pareto Distribution and the Cobb-Douglas Production Function in Activity Analysis”, Review of Economic Studies, vol.23, pp.27-31. Hsieh, C-T (1999), Productivity Growth and Factor Prices in East Asia, American Economic Review, Papers and Proceedings, Vol. 89, pp.133-138. Intriligator, M.D. (1978), Econometric Models, Techniques and Applications. Englewood Cliffs, NJ: Prentice Hall. Jorgenson, D.W. (1974), “Investment and Production: A Review”, in M.D. Intriligator and D.A. Kendrick (eds), Frontiers of Quantitative Economics, Vol II, Amsterdam: North Holland. Jorgenson D.W. and Griliches, Z. (1967), “The Explanation of Productivity change”, Review of Economic Studies, vol. 34, pp.249-83. Lavoie, M. (1992), Foundations of Post-Keynesian Economic Analysis, Aldershot, Edgar Elgar. Lee, F.S. (1999), Post Keynesian Price Theory, Cambridge: Cambridge University Press. Lucas, R. E. (1970) “Capacity, Overtime, and Empirical Production Functions”, American Economic Review. Papers and Proceedings, vol. 60, pp. 23-27. McCombie J.S.L. (1987). “Does the Aggregate Production Function Imply Anything about the Laws of Production? A Note on the Simon and Shaikh Critiques.” Applied Economics, 19: 1121-36. McCombie, J.S.L. (1997), “Rhetoric, Paradigms, and the Relevance of the Aggregate Production Function”, in P. Arestis and M.C. Sawyer (eds) Method, Theory and Policy in Keynes. Essays in Honour of Paul Davidson, Vol III, Aldershot: Edward Elgar. McCombie, J.S.L. (1998), “ ‘Are There Laws of Production?: An Assessment of the Early Criticisms of the Cobb-Douglas Production Function”, Review of Political Economy, vol.10, pp.141-173. McCombie, J.S.L. (2000) “ The Regional Production and the Accounting Identity: A Problem of Interpretation” Australasian Journal of Regional Studies, Vol 6, McCombie, J.S.L. (2000-2001). “The Solow Residual, Technical Change and Aggregate Production Functions ”, Journal of Post Keynesian Economics, vol.23, pp. 267-297 (errata Vol 23(3) p.544). McCombie, J.S.L. (2001), “What does the Aggregate Production Function Tell Us? Second Thoughts on Solow’s ‘Second Thoughts on Growth Theory’ ”, Journal of Post Keynesian Economics (forthcoming) McCombie, J.S.L., and Dixon., R. (1991), “Estimating Technical Change in Aggregate Production Functions: A Critique”, International Review of Applied Economics, vol. 4,pp. 24-46. McCombie, J.S.L., and Thirlwall, A.P. (1994), Economic Growth and the Balance-of-Payments Constraint, Basingstoke: Macmillan. Marshak, J. and Andrews, W.H. (1944), “Random Simultaneous Equations and the Theory of Production”, Econometrica, vol. 12, pp.143-205. Nelson, C. and Kang, H. (1984), “Pitfalls in the Use of Time as an Explanatory Variable in Regressions”, Journal of Business and Economic Statistics, Vol. 2: 73-82. Nelson R.R and Winter S.G. (1982), An Evolutionary Theory of Economic Change, Cambridge MA: Harvard University Press. Pasinetti, L.L. (1994), “The Structure of Long-Term Development: Concluding Comments”, in Pasinetti, L.L. and Solow, R.M. (eds) Economic Growth and the Structure of Long-Term Development, Basingstoke: Macmillan. Phelps Brown, E.H. (1957), “The Meaning of the Fitted Cobb-Douglas Function”, Quarterly Journal of Economics, vol. 71. pp. 546-60. Robinson, J. V. (1970), “Capital Theory up to Date”, Canadian Journal of Economics, vol.3: 309-17. Samuelson, P.A. (1979), “ Paul Douglas’s Measurement of Production Functions and Marginal Productivities”, Journal of Political Economy, vol. 87, pp. 923-939. Shaikh, A. (1974), “Laws of Production and Laws of Algebra: The Humbug Production Function”, Review of Economics and Statistics Vol. LVI, pp. 115-20. Shaikh, A (1980), “Laws of Production and Laws of Algebra: Humbug II”, In Edward J. Nell (ed.), Growth, Profits and Property, Essays in the Revival of Political Economy. pp. 80-95, Cambridge: Cambridge University Press. Shaikh, A. (1987), “Humbug Production Function”, in Eatwell, J., Milgate, M. and Newman, P. (eds) The New Palgrave. A Dictionary of Economic Theory and Doctrine. London: Macmillan. Simon, H. A. (1979a), “Rational Decision Making in Business Organizations”, American Economic Review, vol.69, pp. 493-513. Simon, H.A. (1979b), “On Parsimonious Explanation of Production Relations”, Scandinavian Journal of Economics, vol. 81, pp. 459-74. Simon, H. A. and Levy, F.K. (1963), “A Note on the Cobb-Douglas Function”, Review of Economic Studies. vol. 30, pp. 93-4. Solow, R.M. (1957), “Technical Change and the Aggregate Production Function”, Review of Economics and Statistics, vol. 39, pp. 312-20. Solow, R.M. (1966), “Review of Capital and Growth”, American Economic Review, vol. 56, pp.1257-60. Solow, R.M. (1974), “Laws of Production and Laws of Algebra: The Humbug Production Function: A Comment”, Review of Economics and Statistics, vol. 64, p.121. Solow, R.M. (1987), “Second Thoughts on Growth Theory”, in A. Steinherr and D. Weiserbs (eds), Employment and Growth: Issues for the 1980s, Dordrecht: Martinus Nijhoff Publishers. Sylos Labani, P. (1995), “ Why the Interpretation of Cobb-Douglas Production Function Must be Radically Changed.” Structural Change and Economic Dynamics, vol.6, pp.485-504. Wallis, K. F. (1979), Topics in Applied Econometrics, London: Gray-Mills Publishing Walters, A.A. (1963), "Production and Cost Functions", Econometrica, vol.31, pp. 1-66. Wan, H.Y. (1971), Economic Growth, New York: Harcourt Brace Jovanovich

How sound are the foundations of the aggregate production function?

The aggregate production function has been subject to a number of criticisms ever since its first empirical estimation by Cobb and Douglas in the 1920s, notably the problems raised by aggregation and the Cambridge Capital Theory Controversies. There is a further criticism due initially to Phelps Brown (and elaborated, in particular, by Simon and Shaikh) which is not so widely known. This critique is that because at the aggregate level only value data can be used to estimate production function, this means that the estimated parameters of the production function are merely capturing an underlying accounting identity. Hence, no reliance can be placed on estimates of, for example, the elasticity of substitution as reflecting technological parameters. The argument also explains why good statistical fits of the aggregate production functions are obtained, notwithstanding the difficulties posed by the aggregation problem and the Cambridge Capital Controversies noted above. This paper outlines and assesses the Phelps Brown critique and its extensions. In particular, it considers some possible objections to his argument and demonstrates that they are not significant. It is concluded that the theoretical basis of the aggregate production function is problematic.UnpublishedArrow, K.J. (1962), “Economic Welfare and the Allocation of Resources of Invention.” In R.R.Nelson (ed.), The Rate and Direction of Inventive Activity: Economic and Social Factors. Princeton NJ: NBER & Princeton University Press. Blaug, M. (1974), The Cambridge Revolution. Success or Failure? A Critical Analysis of Cambridge Theories of Value and Distribution. Eastbourne: Institute of Economic Affairs. Bronfenbrenner, M. (1944), "Production Functions: Cobb-Douglas, Interfirm, Intrafirm." Econometrica, vol. 12: 35-44. Cobb, C.W. and P.H. Douglas. (1928). “A Theory of Production.” American Economic Review, Supplement. vol. 18, pp.139-165. Cramer, J.S. (1969), Empirical Econometrics. Amsterdam: North-Holland. Denison, E. (1967), Why Growth Rates Differ: Postwar Experience in Nine Western Countries. Washington D.C.: The Brookings Institution. Douglas, P.H. (1944), “Are There Laws of Production?”, American Economic Review, vol. 38, pp.1-41. Douglas, P.H. (1976), “The Cobb-Douglas Production Function Once Again: Its History, Its Testing, and Some Empirical Values.” Journal of Political Economy, vol. 84, pp.903-115. Felipe, J. (2001a), “Endogenous Growth, Increasing Returns, and Externalities: An Alternative Interpretation of the Evidence”, Metroeconomica. (forthcoming). Felipe, J. (2001b), “Aggregate Production Functions and the Measurement of Infrastructure Productivity: A Reassessment”, Eastern Economic Journal (forthcoming) Felipe, J. and Adams, G. F. (2001), “ ‘A Theory of Production’. The Estimation of the Cobb-Douglas Function: A Retrospective View”, Georgia Institute of Technology and Northeastern University (mimeo). Felipe, J. and Holz, C. (2001), “Why do Production Functions Work? Fisher’s Simulations, Shaikh’s Identity and Some New Results”, International Review of Applied Economics (forthcoming) Felipe, J and McCombie, J.S.L. (2001), “The CES Production Function, the Accounting Identity and Occam’s Razor”, Applied Economics, Vol.33. pp.1221-1232. Felipe, J and McCombie J.S.L., (2001c), “Can Solow’s Growth Model be Tested? Some Methodological Concerns”, Georgia Institute of Technology & the University of Cambridge (mimeo). Felipe, J and McCombie, J.S.L. (2002a), “A Problem with Some Recent Estimations and Interpretations of the Mark-up in Manufacturing Industry”, International Review of Applied Economics, (forthcoming) Felipe, J. and McCombie, J.S.L. (2002b), “Methodological Problems with the Neoclassical Analyses of the East Asian Economic Miracle”, Cambridge Journal of Economics, (forthcoming) Ferguson, C.E. (1969), The Neoclassical Theory of Production and Distribution. Cambridge: Cambridge University Press (revised edition 1972). Ferguson, C.E. (1971), Capital Theory up to Date: A Comment on Mrs Robinson’s Article”, Canadian Journal of Economics, vol. IV, pp.250-254. Fisher, F.M. (1971), "Aggregate Production Functions and the Explanation of Wages: A Simulation Experiment." The Review of Economics and Statistics, vol. LIII, pp. 305-25. Fisher, F.M. (1987). "Aggregation Problems." In J. Eatwell, M. Milgate, and P. Newman (eds.), The New Palgrave. A Dictionary of Economics, pp.53-5. Basingstoke: Macmillan, Fisher, F.M. (1992), Aggregation. Aggregate Production Functions and Related Topics. (Monz, J., ed.). London: Harvester Wheatsheaf. Friedman, M. (1953), "The Methodology of Positive Economics." In Milton Friedman (ed.), Essays in Positive Economics. Chicago: Chicago University Press. Hahn, F. (1972), The Share of Wages in the National Income: An Enquiry into Distribution Theory, London: Weidenfeld and Nicholson. Hall R.E. (1988), “The Relation between Price and Marginal Cost in U.S. Industry”, Journal of Political Economy, vol. 96, pp. 921-947. Hall, R.E. (1990), “Invariance Properties of Solow's Productivity Residual”, in P. Diamond (ed.) Growth/Productivity/Employment, Cambridge, MA :MIT Press. Harcourt. G.C. (1972), Some Cambridge Controversies in the Theory of Capital. Cambridge: Cambridge University Press. Harcourt, G.C. (1982), The Social Science Imperialist. (P. Kerr, ed.) London: Routledge and Kegan Paul. Heathfield, D.F. and Wibe S. (1987), An Introduction to Cost and Production Functions. Basingstoke: Macmillan. Hildebrand, G. and Liu, T.C. (1965), Manufacturing Production Functions in the United States, 1957, Ithica, New York: Cornell University Press. Hill T.P. (1979), Profits and Rates of Return, Paris: OECD. Houthakker H.S. (1955-56), “The Pareto Distribution and the Cobb-Douglas Production Function in Activity Analysis”, Review of Economic Studies, vol.23, pp.27-31. Hsieh, C-T (1999), Productivity Growth and Factor Prices in East Asia, American Economic Review, Papers and Proceedings, Vol. 89, pp.133-138. Intriligator, M.D. (1978), Econometric Models, Techniques and Applications. Englewood Cliffs, NJ: Prentice Hall. Jorgenson, D.W. (1974), “Investment and Production: A Review”, in M.D. Intriligator and D.A. Kendrick (eds), Frontiers of Quantitative Economics, Vol II, Amsterdam: North Holland. Jorgenson D.W. and Griliches, Z. (1967), “The Explanation of Productivity change”, Review of Economic Studies, vol. 34, pp.249-83. Lavoie, M. (1992), Foundations of Post-Keynesian Economic Analysis, Aldershot, Edgar Elgar. Lee, F.S. (1999), Post Keynesian Price Theory, Cambridge: Cambridge University Press. Lucas, R. E. (1970) “Capacity, Overtime, and Empirical Production Functions”, American Economic Review. Papers and Proceedings, vol. 60, pp. 23-27. McCombie J.S.L. (1987). “Does the Aggregate Production Function Imply Anything about the Laws of Production? A Note on the Simon and Shaikh Critiques.” Applied Economics, 19: 1121-36. McCombie, J.S.L. (1997), “Rhetoric, Paradigms, and the Relevance of the Aggregate Production Function”, in P. Arestis and M.C. Sawyer (eds) Method, Theory and Policy in Keynes. Essays in Honour of Paul Davidson, Vol III, Aldershot: Edward Elgar. McCombie, J.S.L. (1998), “ ‘Are There Laws of Production?: An Assessment of the Early Criticisms of the Cobb-Douglas Production Function”, Review of Political Economy, vol.10, pp.141-173. McCombie, J.S.L. (2000) “ The Regional Production and the Accounting Identity: A Problem of Interpretation” Australasian Journal of Regional Studies, Vol 6, McCombie, J.S.L. (2000-2001). “The Solow Residual, Technical Change and Aggregate Production Functions ”, Journal of Post Keynesian Economics, vol.23, pp. 267-297 (errata Vol 23(3) p.544). McCombie, J.S.L. (2001), “What does the Aggregate Production Function Tell Us? Second Thoughts on Solow’s ‘Second Thoughts on Growth Theory’ ”, Journal of Post Keynesian Economics (forthcoming) McCombie, J.S.L., and Dixon., R. (1991), “Estimating Technical Change in Aggregate Production Functions: A Critique”, International Review of Applied Economics, vol. 4,pp. 24-46. McCombie, J.S.L., and Thirlwall, A.P. (1994), Economic Growth and the Balance-of-Payments Constraint, Basingstoke: Macmillan. Marshak, J. and Andrews, W.H. (1944), “Random Simultaneous Equations and the Theory of Production”, Econometrica, vol. 12, pp.143-205. Nelson, C. and Kang, H. (1984), “Pitfalls in the Use of Time as an Explanatory Variable in Regressions”, Journal of Business and Economic Statistics, Vol. 2: 73-82. Nelson R.R and Winter S.G. (1982), An Evolutionary Theory of Economic Change, Cambridge MA: Harvard University Press. Pasinetti, L.L. (1994), “The Structure of Long-Term Development: Concluding Comments”, in Pasinetti, L.L. and Solow, R.M. (eds) Economic Growth and the Structure of Long-Term Development, Basingstoke: Macmillan. Phelps Brown, E.H. (1957), “The Meaning of the Fitted Cobb-Douglas Function”, Quarterly Journal of Economics, vol. 71. pp. 546-60. Robinson, J. V. (1970), “Capital Theory up to Date”, Canadian Journal of Economics, vol.3: 309-17. Samuelson, P.A. (1979), “ Paul Douglas’s Measurement of Production Functions and Marginal Productivities”, Journal of Political Economy, vol. 87, pp. 923-939. Shaikh, A. (1974), “Laws of Production and Laws of Algebra: The Humbug Production Function”, Review of Economics and Statistics Vol. LVI, pp. 115-20. Shaikh, A (1980), “Laws of Production and Laws of Algebra: Humbug II”, In Edward J. Nell (ed.), Growth, Profits and Property, Essays in the Revival of Political Economy. pp. 80-95, Cambridge: Cambridge University Press. Shaikh, A. (1987), “Humbug Production Function”, in Eatwell, J., Milgate, M. and Newman, P. (eds) The New Palgrave. A Dictionary of Economic Theory and Doctrine. London: Macmillan. Simon, H. A. (1979a), “Rational Decision Making in Business Organizations”, American Economic Review, vol.69, pp. 493-513. Simon, H.A. (1979b), “On Parsimonious Explanation of Production Relations”, Scandinavian Journal of Economics, vol. 81, pp. 459-74. Simon, H. A. and Levy, F.K. (1963), “A Note on the Cobb-Douglas Function”, Review of Economic Studies. vol. 30, pp. 93-4. Solow, R.M. (1957), “Technical Change and the Aggregate Production Function”, Review of Economics and Statistics, vol. 39, pp. 312-20. Solow, R.M. (1966), “Review of Capital and Growth”, American Economic Review, vol. 56, pp.1257-60. Solow, R.M. (1974), “Laws of Production and Laws of Algebra: The Humbug Production Function: A Comment”, Review of Economics and Statistics, vol. 64, p.121. Solow, R.M. (1987), “Second Thoughts on Growth Theory”, in A. Steinherr and D. Weiserbs (eds), Employment and Growth: Issues for the 1980s, Dordrecht: Martinus Nijhoff Publishers. Sylos Labani, P. (1995), “ Why the Interpretation of Cobb-Douglas Production Function Must be Radically Changed.” Structural Change and Economic Dynamics, vol.6, pp.485-504. Wallis, K. F. (1979), Topics in Applied Econometrics, London: Gray-Mills Publishing Walters, A.A. (1963), "Production and Cost Functions", Econometrica, vol.31, pp. 1-66. Wan, H.Y. (1971), Economic Growth, New York: Harcourt Brace Jovanovich

A problem with some estimations and interpretations of the mark-up in manufacturing industry

This paper evaluates the methodological foundations of some recent attempts to estimate econometrically the degree of market power and the degree of returns to scale in manufacturing. The method discussed is based on estimating the aggregate production function in growth rate form. It is argued, following an argument made in another context by Phelps Brown, Shaikh, and Simon, that as the data used in empirical analyses are in value terms (i.e., monetary values at constant prices), the parameter derived as a mark-up can be reinterpreted simply as a coefficient from the income accounting identity, which takes a value of unity subject to omitted variable bias. Thus, it cannot be unambiguously interpreted as a mark-up. It is also shown that the large estimates of the degree of increasing returns to scale are similarly flawed. The argument also has implications for understanding cyclical fluctuations of the Solow residual, which turns out to be largely the result of the procyclical fluctuations of the profit rate. We conclude by questioning whether the aggregate production function can ever be statistically tested, or, in other words, whether it is capable of being refuted, as opposed to its parameters being merely estimated.UnpublishedAbbott, T.A., Griliches, Z. & Hausman, J.A. (1998) Short Run Movements in Productivity: Market Power versus Capacity Utilization, in: Z. Griliches (Ed.) Practicing Econometrics: Essays in Method and Application (Edward Elgar). Barsky, R., Bergen, M., Dutta, S. & Levy, D. (2000) What Can the Price Gap Between Branded and Generic Tell US about Mark-ups? Paper presented at the NBER Conference on Income and Wealth, Scanner Data and Price Indexes (September 2000). Basu, S. & Fernald, J. G. (1995) Are Apparent Spillovers a Figment of Specification Error? Journal of Monetary Economics, 36, pp. 165-188. Basu, S. and Fernald, J. (1997) Returns to Scale in Production: Estimates and Implications. Journal of Political Economy, 105, pp. 249-283. Bresnahan, T. F. (1989) Empirical Studies of Industries with Market Power, in: R. Schmalensee & Willig, R.D. (Eds.) Handbook of Industrial Organization, Vol.II (Elsevier Science). Domowitz, I., Hubbard, R. G., & Petersen, B. C. (1988) Market Structure and Cyclical Fluctuations in U.S. Manufacturing, Review of Economics and Statistics, 70, pp. 55-66. Eden, B., & Griliches, Z. (1993) Productivity, Market Power and Capacity Utilization when Spot Markets are Complete, American Economic Review, Papers and Proceedings, 83, pp. 219-223. Felipe, J. (2001) Endogenous Growth, Increasing Returns, and Externalities: An Alternative Interpretation of the Evidence, Metroeconomica, 54, 391-427. Felipe, J. & C. Holz (2001) Why Do Aggregate Production Functions Work? Fisher’s Simulations, Shaikh’s Identity, and Some New Results, International Review of Applied Economics,15, 261-285. Felipe, J and J.S.L. McCombie (2001), How Sound are the Foundations of the Aggregate Production Function? Georgia Institute of Technology and Downing College, Cambridge (mimeo). Felipe, J. & J.S.L. McCombie (2002), Methodological Problems with Neoclassical Analyses of the East Asian Miracle, Cambridge Journal of Economics (forthcoming). Fisher, F. (1971) Aggregate Production Functions and the Explanation of Wages: A Simulation Experiment, The Review of Economics and Statistics, LIII, pp. 305-325. ________ (1993) Aggregation. Aggregate Production Functions and Related Topics J. Monz (Ed.) Cambridge, MA, The MIT Press. Hall, R. E. (1986) Market Structure and Macroeconomic Fluctuations, Brookings Papers on Economic Activity, 2, pp. 285-322. ________ (1987) Productivity and the Business Cycle, Carnegie-Rochester Conference Series on Public Policy, 27, pp. 421-444. ________ (1988a) The Relation between Price and Marginal Cost in U.S. Industry, Journal of Political Economy, 96, pp. 921-947. ________ (1988b) Increasing Returns: Theory and Measurement with Industry Data, National Bureau of Economic Research. ________ (1990) Invariance Properties of Solow's Productivity Residual, in: P. Diamond (Ed.) Growth/Productivity/Employment (Cambridge, MA, The MIT Press). Harcourt. G.C. (1972) Some Cambridge Controversies in the Theory of Capital (Cambridge, MA Cambridge University Press). Jorgenson, D. W. & Griliches, Z. (1967) The Explanation of Productivity Change, Review of Economic Studies, 34, pp. 249-283. Jorgenson, D.W., Gollop, F. & Fraumeni, B. (1987) Productivity and U.S. Economic Growth. (Cambridge, MA, Harvard University Press). Kaldor, N. (1956) Alternative Theories of Distribution, Review of Economic Studies, XXIII, pp. 83-100. Lucas, R. E. (1970) Capacity, Overtime, and Empirical Production Functions, American Economic Review. Papers and Proceedings, 60, pp. 23-27. McCombie J.S.L. (1987) Does the Aggregate Production Function Imply Anything about the Laws of Production? A Note on the Simon and Shaikh Critiques. Applied Economics, 19, pp. 1121-36. McCombie, J.S.L. (2000-2001), The Solow Residual, Technical Change and Aggregate Production Functions, Journal of Post Keynesian Economics, 23, pp.267-297 (erratum, 23 no.3 p.544) McCombie, J.S.L. (2001) What do Aggregate Production Functions Show? Second Thoughts on Solow’s “Second Thoughts on Growth Theory” Journal of Post Keynesian Economics, (forthcoming). McCombie, J.S.L. & Dixon, R. (1991) Estimating Technical Change in Aggregate Production Functions: A Critique, International Review of Applied Economics, 5, pp. 24-46. Norrbin, S. C. (1993) The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction, Journal of Political Economy, 101, pp. 1149-1164. Oi, W. (1962) Labour as a Quasi-Fixed Input, Journal of Political Economy, 70, pp. 538-555. Phelps-Brown, E.H. (1957) The Meaning of the Fitted Cobb-Douglas Function, Quarterly Journal of Economics, 71, pp.546-60. Prescott, E.C. (1986) Theory Ahead of Business Cycle Measurement, Federal Reserve Bank of Minneapolis Quarterly Review, 10, pp.9-22. Samuelson, P. (1979) Paul Douglas’s Measurement of Production Functions and Marginal Productivities, Journal of Political Economy, 87, pp. 923-939. Shaikh, A. (1974) Laws of Production and Laws of Algebra: The Humbug Production Function, The Review of Economics and Statistics, 56, pp. 115-120. ________ (1980) Laws of Production and Laws of Algebra: Humbug II, in: Edward J. Nell (Ed.) Growth, Profits and Property. Essays in the Revival of Political Economy (Cambridge, MA, Cambridge University Press). Shaikh, A. (1987) Humbug Production Function in Eatwell, J., Milgate, M. and Newman, P. (Eds) The New Palgrave. A Dictionary of Economic Theory and Doctrine. (London: Macmillan). Shapiro, M. D. (1987) Are Cyclical Fluctuation in Productivity due more to Supply Shocks or Demand Shocks?, American Economic Review Papers and Proceedings, 77, pp. 118-124. Shea, J. (1999) What Do Technology Shocks Do?, in: B. S. Bernanke & Rotemberg, J. (Eds.) NBER Macroeconomics Annual 1998 (Cambridge, MA, The MIT Press). Simon, H. A. (1979) On Parsimonious Explanations of Production Relations, Scandinavian Journal of Economics, 81, pp. 459-474. Sims, C. (1969) Theoretical Basis for a Double Deflated Index of Real Value Added, The Review of Economics and Statistics, LI, pp. 470-471. Solow, R. M. (1957) Technical Change and Aggregate Production Function, Review of Economics and Statistics, 39, pp. 312-320. Solow, R.M (1974) “Laws of Production and Laws of Algebra: The Humbug Production Function: A Comment”, Review of Economics and Statistics, LVI, p.121. Tatom, J. A. (1980) The “Problem” of Procyclical Real Wages and Productivity, Journal of Political Economy, Vol.88, pp. 385-394. Waldman, R. J. (1991) Implausible Results or Implausible Data? Anomalies in the Construction of Value-Added Data and Implications for Estimates of Price-Costs Mark-ups, Journal of Political Economy, 99, pp. 1315-28. Zarnowitz, V. (1999) Theory and History Behind Business Cycles: Are the 1990s the Onset of a Golden Age?, Journal of Economic Perspectives, 13, pp. 69-9

Erkin Bairam: 1958-2001 His contribution to economics

With Erkin Bairam’s untimely death on 21 May 2001 at the age of 43, New Zealand lost one its most distinguished and prolific applied economists. Born in Nicosia, Cyprus, most of Bairam’s working life was spent in the Department of Economics at the University of Otago in Dunedin, New Zealand. At the age of 33, he became one of the youngest full professors to be appointed in New Zealand, and, by the time of his death, had published over 60 articles and 4 books. Bairam had two main research interests: namely, the theoretical specification and estimation of aggregate production functions and the testing of Thirlwall’s law of economic growth. But his interests went wider than this. He was a gifted applied econometrician and made contributions to econometric theory and also published in the areas of inflation and labour economics. Although he would have been the first to admit that he was not a natural sportsman, he developed an interest in the economics of sport, especially cricket and published some innovative papers in this area. He also undertook some notable work in calculating the research rankings of economics departments (always a contentious issue), with an article being published in the prestigious Journal of Economic Literature (Bairam, 1994a). Bairam’s undergraduate training took place at the University of Essex, where he gained a BA (Hons) in Economics in 1980. He left Essex for Hull, where he was awarded an MA in Econometrics in 1982. He then began work on his PhD thesis entitled Returns to Scale, Technical Progress and Industrial Growth in the USSR and Eastern Europe: An Empirical Study, 1961-75, with John McCombie as his supervisor. He was awarded his doctorate in 1986 and the following year was appointed as a lecturer at the University of Otago. By 1991, after only four years, he had risen to the rank of full professor. This tribute will discuss some of Bairam’s key research contributions, as well as his contribution to the Department at Otago.UnpublishedArrow, K. (1962) “The economic implications of learning-by-doing”, Review of Economic Studies, 29: 155-73. Bairam, E.I. (1986) “Returns to scale, technical progress and output growth in branches of industry: the case of Eastern Europe and the USSR, 1961-75”, Keio Economic Studies, 23: 63-78. Bairam, E.I. (1987a) “The Verdoorn Law, returns to scale and industrial growth: a review of the literature”, Australian Economic Papers, 26: 220-242. Bairam, E.I. (1987b) “Returns to scale, technical progress and output growth in branches of industry: the case of the Soviet Republics, 1962-74”, Scottish Journal of Political Economy, 34: 249-266. Bairam, E.I. (1987c) “Returns to scale, technical progress and output growth in branches of industry: the case of COMECON, 1961-75”, Middle East Technical University Studies in Development, 14: 105-122. Bairam, E.I. (1987d) “Orthodox production functions with variable returns to scale: some analysis and testing using Soviet and Polish regional data”, Keio Economic Studies, 24: 63-83. Bairam, E.I. (1987e) “Soviet postwar industrial growth and capital labour substitution: an empirical note”, Economics Letters, 24: 331-334. Bairam, E.I. (1987f) “Technical change and returns to scale. The Jordanian experience”, Middle East Technical University Studies in Development, 14: 397-402. Bairam, E.I. (1987g) “Technical change and returns to scale: the Jordanian experience: a rejoinder”, Middle East Technical University Studies in Development, 14: 405-07. Bairam, E.I. (1987h) “Orthodox production functions with variable returns to scale: some analysis and testing using Soviet and Polish regional data”, Keio Economic Studies, 24: 63-83. Bairam, E.I. (1988a) “Technical progress, elasticity of substitution and returns to scale in branches of Soviet industry: some new empirical evidence using Soviet republic data, 1961-74”, The Manchester School, 56: 103-117. Bairam, E.I. (1988b) “Variable elasticity of substitution, technical change and industrial growth: the Rumanian experience”, Journal of Quantitative Economics, 4: 123-131. Bairam, E.I. (1988c) “Balance of payments, the Harrod foreign trade multiplier and economic growth: the European and North American experience, 1970-85”, Applied Economics, 20: 1635-1642. Bairam, E.I. (1988d) “The variability of inflation: a new approach and some new empirical evidence”, Economics Letters, 28: 327-329. Bairam, E.I. (1988e). “Government expenditure and economic growth: reflections on Professor Ram's approach, a new framework and some evidence from New Zealand time-series data”, Keio Economic Studies; 25: 59-66. Bairam, E.I. (1988f), “Verdoorn's Law once again: its specification and interpretation Indian Economic Journal, 35: 30-38. Bairam, E.I. (1988g), Technical Progress and Industrial Growth in the USSR and Eastern Europe: An Empirical Study, 1961-75. Aldershot: Avebury. Bairam, E.I. (1989a) “ ‘Learning-by-doing’, variable elasticity of substitution and economic growth in Japan, 1878-1939”, Journal of Development Studies, 25: 344-353. Bairam, E.I. (1989b) “Returns to scale in branches of New Zealand manufacturing industry: a cross-section production function study, 1983/84”, Keio Economic Studies, 26: 43-52. Bairam, E.I. (1990a) “The Harrod foreign trade multiplier revisited”, Applied Economics, 22: 711-718. Bairam, E.I. (1990b) “Capital-labour substitution and slowdown in Soviet economic growth: a re-examination”, Bulletin of Economic Research, 42: 63-72. Bairam, E. I. (1990c) “Money and inflation: the case of Western Developed Countries, 1960-80, Applied Economics; 22: 863-69. Bairam, E. I. (1990d), “Verdoorn's original model and the Verdoorn Law controversy: some new empirical evidence using the Australian manufacturing data”, Australian Economic Papers; 29: 107-12. Bairam E. I. (1990e) “Aggregate and disaggregate production function estimates for the Indian economy using annual time-series and cross-regional data”, Indian Economic Journal, 38: 152-68. Bairam E. I. (1990f) “Government size and economic growth: the African experience, 1960-85”, Applied Economics, 22: 1427-35. Bairam, E I. (1991a), “Elasticity of substitution, technical progress and returns to scale in branches of Soviet industry: a new CES production function approach”, Journal of Applied Econometrics, 6: 91-96. Bairam E. I. (1991b), “Government expenditure, money supply and unemployment in the USA: an analysis of the pre-war and post-war functional forms”, Applied Economics, 23: 1483-86. Bairam E. I. (1991c) “Economic growth and Kaldor’s Law: the case of Turkey, 1925-78”, Applied Economics; 23: 1277-80. Bairam E. I. (1991d) “Functional form and new production functions: some comments and a new VES function”, Applied Economics, 23: 1247-49. Bairam, E.I. (1991e) “Capital-labour substitution in sectors of a less developed economy: the case of Bangladesh”, Bangladesh Development Studies; 19: 87-91. Bairam, E.I. (1991f) “Functional form and new production functions: some comments and a new VES function” Applied Economics; 23: 1247-49. Bairam, E I. (1992a) “Money and inflation: a reply”, Applied Economics; 24: 586. Bairam, E I. (1992b) “Output and inflation: the case of European countries, 1950-85”, Middle East Technical University Studies in Development, 19: 1-8. Bairam, E I. (1992c) “Applied economics: institutional publishing performances, 1986-1990”, Applied Economics; 24: 557-58. Bairam, E I. (1992d) “The variabilities of inflation and output growth rates-are they related?” Keio Economic Studies; 29:57-60. Bairam, E I. (1993a) “Autoregressive conditional heteroscedasticity and theories of inflation”, Rivista Internazionale di Scienze Economiche e Commerciali; 40: 119-26. Bairam, E.I. (1993b) “Income elasticities of exports and imports: a re-examination of the empirical evidence”, Applied Economics, 25: 71-74. Bairam, E.I. (1993c) “Static versus dynamic specifications and the Harrod foreign trade multiplier” Applied Economics, 25: 739-42. Bairam, E.I (1993d) “The aggregate demand for labour in New Zealand: a variable elasticity approach” in Bairam, E. I. (ed.) Studies in Labour Economics. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, Avebury, 1-9. Bairam, E.I., (1993e) (ed.) Studies in Labour Economics. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, Avebury. Bairam, E.I. (1994a) “Institutional affiliation of contributors to top economic journals, 1985-1990”, Journal of Economic Literature, 32: 674-679. Bairam, E.I. (1994b) “The elasticity of scale in large New York stock exchange companies and corporations, 1975-92” Applied Economics Letters, 1:134-37. Bairam, E.I. (1995a) “Kaldor’s technical progress function revisited”, Applied Economics Letters, 2: 302-04. Bairam, E.I. (1995b) “Externality effect of the USA total, federal and state government expenditures on private investment, 1960-91”, Applied Economics Letters, 2: 23-25. Bairam, E.I. (1995c) “Level of aggregation, variable elasticity and Wagner’s Law”, Economics Letters, 48: 341-344. Bairam, E.I. (1996a) “Finite sample behaviour of GNR tests for serial correlation” Applied Economics Letters; 3: 55-57. Bairam, E.I. (1996b) “The form of the production function for the Chinese regional economy,” Applied Economics Letters; 3: 355-58. Bairam, E.I. (1996c) “Research productivity in New Zealand university economics departments, 1988-1995”, New Zealand Economic Papers, 30: 229-241. Bairam, E.I. (1996d) “Non-convex cost and the behaviour of inventories: some disaggregate results” Applied Economics Letters; 3: 687-91. Bairam, E.I. (1996e) “Disaggregate inventory-sales ratios over time: the case of US companies and corporations, 1976-92 ”, Applied Economics Letters, 3: 167-69. Bairam, E.I. (1997a) “Levels of economic development and appropriate specification of the Harrod foreign trade multiplier”, Journal of Post Keynesian Economics, 19: 337-344. Bairam, E.I. (1997b) “The roles of diffusion of advance technology and capital deepening in economic growth: a cross-country study”, Applied Economics Letters, 4: 497-501. Bairam, E.I. (1998a) Production and Cost Functions: Specification, Measurement and Applications, Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, pages vii, 132. Bairam, E. I. (1998b) “Linear versus nonlinear technical progress: theory and some evidence”, in Bairam, E.I., (ed.) Production and Cost Functions: Specification, Measurement and Applications. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, 68-81 and Applied Economics Letters; (1999) 6: 283-86. Bairam, E. I. (1998c) “Non-linear costs and returns to scale: some disaggregate results” in Bairam, E.I., (ed.) Production and cost functions: Specification, measurement and applications. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, 125-32. Bairam, E. I. (1998d) “The form of production function for the Chinese regional economy”, in Bairam, E I., (ed.) Production and Cost Functions: Specification, Measurement and Applications. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, 62-67. Bairam, E I (1998e) The Popular and Some New Non-homogeneous Production Functions Bairam, E. I, (ed.) Production and Cost Functions: Specification, Measurement and Applications. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, 1-16. Bairam, E.I. (1999a) “Linear versus nonlinear technical progress: theory and some evidence” Applied Economics Letters, 6: 283-86. Bairam, E.I. (1999b) “Domestic versus foreign capital and returns to scale in China's provincial industries”, Applied Economics Letters, 6: 621-24. Bairam, E.I and A.K. Dasgupta, (1993) “The elasticity of substitution and its effect on the wage rate in branches of Indian industry”, in Bairam, E.I., (ed.) Studies in Labour Economics. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, Avebury, 10-20. Bairam, E.I. and G.J. Dempster (1991) “The Harrod foreign trade multiplier and economic growth in Asian countries”, Applied Economics, 23: 1719-1724. Bairam, E.I. and J.M Howells, (1989c) “Strike incidence in New Zealand: a new econometric approach”, Australian Economic Papers, 28: 93-102. Reprinted in Bairam, E I., (ed.) (1993) Studies in Labour Economics. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, Avebury, 21-35 Bairam, E.I. and J.M. Howells (1994) “The incentive effects of tournaments: the PGA Australasian tour 1991”, New Zealand Journal of Industrial Relations, 19: 151-160. Bairam, E.I., Howells, J.M, and G.M. Turner, (1990) “Production functions in cricket: the Australian and New Zealand experience”, Applied Economics, 22: 871-79. Bairam, E. I. and E. Kahya, (1998) “Production versus cost functions: unreliability of the duality theorem in accounting and economics” in Bairam, E.I., (ed.) Production and Cost Functions: Specification, Measurement and Applications, Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, 42-53. Bairam, E.I. and S. McRae (1999) “Testing the convergence hypothesis: a new approach”, Economics Letters, 64: 351-355. Bairam, E.I. and L. Ng (2001) “Thirlwall’s Law and the stability of export and import income elasticities”, International Review of Applied Economics, 15: 287-303. Bairam, E.I. and B. Ward, (1993) “The externality effect of government expenditure on investment in OECD countries”, Applied Economics; 25: 711-16. Bergson, A. (1979) “Notes on the production function in Soviet postwar industrial growth”, Journal of Comparative Economics, 3: 116-126. Box, G.E.P. and D.R. Cox (1964) “An analysis of transformations”, Journal of the Royal Statistical Society, Series B, 26: 211-252. Cornwall, J. (1977) Modern Capitalism: Its Growth and Transformation, London: Modern Robertson. Genc, M. and E.I. Bairam, (1998) “The Box-Cox Transformation as a VES Production Function in Bairam, E.I., (ed.) Production and Cost Functions: Specification, Measurement and Applications. Aldershot, U.K.; Brookfield, Vt. and Sydney: Ashgate, 54-61. Gershenkron, A. (1965) Economic Backwardness in Historical Perspective. A Book of Essays. New York: Praeger. Gomulka, S. (1977) “Slowdown in Soviet industrial growth: 1947-75, reconsidered”, European Economic Review, 10: 37-49. Gomulka, S. (1983) “Industrialisation and the rate of growth: Eastern Europe, 1955-75”, Journal of Post Keynesian Economics, 5: 388-96. Harrod, R. (1933) International Economics, Cambridge, Cambridge University Press. Houthakker, H. and S. Magee, (1969) “Income and price elasticities in world trade”, Review of Income and Statistics, 60: 111-125. Howell, J.M. (2002) “Erkin Bairam: a personal appreciation”, this Journal. Kaldor, N. (1966) Causes of the Slow Rate of Economic Growth of the United Kingdom. An Inaugural Lecture, Cambridge: Cambridge University Press, (reprinted in Targetti & Thirlwall). Kaldor, N. (1967), Strategic Factors in Economic Development. The Frank W. Pierce Memorial Lecture, New York: Cornell University. Kindleberger, C.P. (1967) Europe’s Postwar Growth. The Role of the Labour Supply. Cambridge Mass: Harvard University Press. Krugman, P. (1994) “The myth of Asia’s miracle”, Foreign Affairs, November/December, 62-78. McCombie, J.S.L. (1985) “Increasing returns and the manufacturing industries: some empirical issues”, The Manchester School, 53: 55-75. McCombie, J.S.L. (1997), “The empirics of balance-of-payments constrained growth”, Journal of Post Keynesian Economics, 19: 345-375. McCombie, J.S.L., Pugno, M. and B. Soro (2002) Productivity Growth and Economic Performance. Essays on Verdoorn’s Law. Basingstoke: Palgrave (forthcoming). McCombie, J.S.L. and A.P. Thirlwall, (1994) Economic Growth and the Balance-of-Payments Constraint, Basingstoke: Macmillan. Mankiw, N.G., Romer, D., and D.N. Weil, (1992) “A contribution to the empirics of economic growth”, Quarterly Journal of Economics, 107: 407-438. Nelson, R.R and Pack, H. (1999) “The Asian Miracle and Modern Growth Theory”, Economic Journal, vol.109, pp. 416-36. Ram, R. (1986) “Comparing evidence on Wagner’s hypothesis from conventional and ‘real’ data”, Economics Letters, 20: 259-262. Ram, R. (1987) “Wagner’s hypothesis in time-series and cross-section perspectives: evidence from ‘real’ data for 115 countries”, Review of Economics and Statistics, 69: 194-204. Schofield, J.A. (1988) “Production functions in the sport industry: an empirical analysis of professional cricket”, Applied Economics, 20: 177-193. Targetti, F. and A.P. Thirlwall (1982) The Essential Kaldor, London: Duckworth Thirlwall, A.P. (1979), “The balance of payments constraint as an explanation of international growth rate differences”, Banca Nazionale Del Lavoro Quarterly Review, 128: 45-53. Thirlwall, A.P. (1997) “Reflections on the concept of balance-of-payments-constrained growth”, Journal of Post Keynesian Economics, 19: 377-385. Towe, J.B. and D.J. Wright (1995) “Research published by Australian economics and econometrics departments, 1988-93”, Economic Record, 71: 8-17. Verdoorn P.J. (1949) “Fattori che regolano lo sviluppo della produttivita del lavoro, L’Industria, 1: 3-10. Young, A. (1995), "The tyranny of numbers: confronting the statistical realities of the East Asian growth experience", Quarterly Journal of Economics, 110: 641-80

Erkin Bairam: 1958-2001 His contribution to economics

With Erkin Bairam’s untimely death on 21 May 2001 at the age of 43, New Zealand lost one its most distinguished and prolific applied economists. Born in Nicosia, Cyprus, most of Bairam’s working life was spent in the Department of Economics at the University of Otago in Dunedin, New Zealand. At the age of 33, he became one of the youngest full professors to be appointed in New Zealand, and, by the time of his death, had published over 60 articles and 4 books. Bairam had two main research interests: namely, the theoretical specification and estimation of aggregate production functions and the testing of Thirlwall’s law of economic growth. But his interests went wider than this. He was a gifted applied econometrician and made contributions to econometric theory and also published in the areas of inflation and labour economics. Although he would have been the first to admit that he was not a natural sportsman, he developed an interest in the economics of sport, especially cricket and published some innovative papers in this area. He also undertook some notable work in calculating the research rankings of economics departments (always a contentious issue), with an article being published in the prestigious Journal of Economic Literature (Bairam, 1994a). Bairam’s undergraduate training took place at the University of Essex, where he gained a BA (Hons) in Economics in 1980. He left Essex for Hull, where he was awarded an MA in Econometrics in 1982. He then began work on his PhD thesis entitled Returns to Scale, Technical Progress and Industrial Growth in the USSR and Eastern Europe: An Empirical Study, 1961-75, with John McCombie as his supervisor. He was awarded his doctorate in 1986 and the following year was appointed as a lecturer at the University of Otago. By 1991, after only four years, he had risen to the rank of full professor. This tribute will discuss some of Bairam’s key research contributions, as well as his contribution to the Department at Otago.UnpublishedArrow, K. (1962) “The economic implications of learning-by-doing”, Review of Economic Studies, 29: 155-73. Bairam, E.I. (1986) “Returns to scale, technical progress and output growth in branches of industry: the case of Eastern Europe and the USSR, 1961-75”, Keio Economic Studies, 23: 63-78. Bairam, E.I. (1987a) “The Verdoorn Law, returns to scale and industrial growth: a review of the literature”, Australian Economic Papers, 26: 220-242. Bairam, E.I. (1987b) “Returns to scale, technical progress and output growth in branches of industry: the case of the Soviet Republics, 1962-74”, Scottish Journal of Political Economy, 34: 249-266. Bairam, E.I. (1987c) “Returns to scale, technical progress and output growth in branches of industry: the case of COMECON, 1961-75”, Middle East Technical University Studies in Development, 14: 105-122. Bairam, E.I. (1987d) “Orthodox production functions with variable returns to scale: some analysis and testing using Soviet and Polish regional data”, Keio Economic Studies, 24: 63-83. Bairam, E.I. (1987e) “Soviet postwar industrial growth and capital labour substitution: an empirical note”, Economics Letters, 24: 331-334. Bairam, E.I. (1987f) “Technical change and returns to scale. The Jordanian experience”, Middle East Technical University Studies in Development, 14: 397-402. Bairam, E.I. (1987g) “Technical change and returns to scale: the Jordanian experience: a rejoinder”, Middle East Technical University Studies in Development, 14: 405-07. Bairam, E.I. (1987h) “Orthodox production functions with variable returns to scale: some analysis and testing using Soviet and Polish regional data”, Keio Economic Studies, 24: 63-83. Bairam, E.I. (1988a) “Technical progress, elasticity of substitution and returns to scale in branches of Soviet industry: some new empirical evidence using Soviet republic data, 1961-74”, The Manchester School, 56: 103-117. Bairam, E.I. (1988b) “Variable elasticity of substitution, technical change and industrial growth: the Rumanian experience”, Journal of Quantitative Economics, 4: 123-131. Bairam, E.I. (1988c) “Balance of payments, the Harrod foreign trade multiplier and economic growth: the European and North American experience, 1970-85”, Applied Economics, 20: 1635-1642. Bairam, E.I. (1988d) “The variability of inflation: a new approach and some new empirical evidence”, Economics Letters, 28: 327-329. Bairam, E.I. (1988e). “Government expenditure and economic growth: reflections on Professor Ram's approach, a new framework and some evidence from New Zealand time-series data”, Keio Economic Studies; 25: 59-66. Bairam, E.I. (1988f), “Verdoorn's Law once again: its specification and interpretation Indian Economic Journal, 35: 30-38. Bairam, E.I. (1988g), Technical Progress and Industrial Growth in the USSR and Eastern Europe: An Empirical Study, 1961-75. Aldershot: Avebury. Bairam, E.I. (1989a) “ ‘Learning-by-doing’, variable elasticity of substitution and economic growth in Japan, 1878-1939”, Journal of Development Studies, 25: 344-353. Bairam, E.I. (1989b) “Returns to scale in branches of New Zealand manufacturing industry: a cross-section production function study, 1983/84”, Keio Economic Studies, 26: 43-52. Bairam, E.I. (1990a) “The Harrod foreign trade multiplier revisited”, Applied Economics, 22: 711-718. Bairam, E.I. (1990b) “Capital-labour substitution and slowdown in Soviet economic growth: a re-examination”, Bulletin of Economic Research, 42: 63-72. Bairam, E. I. (1990c) “Money and inflation: the case of Western Developed Countries, 1960-80, Applied Economics; 22: 863-69. Bairam, E. I. (1990d), “Verdoorn's original model and the Verdoorn Law controversy: some new empirical evidence using the Australian manufacturing data”, Australian Economic Papers; 29: 107-12. Bairam E. I. (1990e) “Aggregate and disaggregate production function estimates for the Indian economy using annual time-series and cross-regional data”, Indian Economic Journal, 38: 152-68. Bairam E. I. (1990f) “Government size and economic growth: the African experience, 1960-85”, Applied Economics, 22: 1427-35. Bairam, E I. (1991a), “Elasticity of substitution, technical progress and returns to scale in branches of Soviet industry: a new CES production function approach”, Journal of Applied Econometrics, 6: 91-96. Bairam E. I. (1991b), “Government expenditure, money supply and unemployment in the USA: an analysis of the pre-war and post-war functional forms”, Applied Economics, 23: 1483-86. Bairam E. I. (1991c) “Economic growth and Kaldor’s Law: the case of Turkey, 1925-78”, Applied Economics; 23: 1277-80. Bairam E. I. (1991d) “Functional form and new production functions: some comments and a new VES function”, Applied Economics, 23: 1247-49. Bairam, E.I. (1991e) “Capital-labour substitution in sectors of a less developed economy: the case of Bangladesh”, Bangladesh Development Studies; 19: 87-91. Bairam, E.I. (1991f) “Functional form and new production functions: some comments and a new VES function” Applied Economics; 23: 1247-49. Bairam, E I. (1992a) “Money and inflation: a reply”, Applied Economics; 24: 586. Bairam, E I. (1992b) “Output and inflation: the case of European countries, 1950-85”, Middle East Technical University Studies in Development, 19: 1-8. Bairam, E I. 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The aggregate production function and Solow's "three denials"

This paper offers a retrospective view of the key pillar of Solow's neoclassical growth model, namely the aggregate production function. We review how this tool came to life and how it has survived until today, despite three criticisms that undermined its raison d'être. They are the Cambridge Capital Theory Controversies, the Aggregation Problem, and the Accounting Identity. These criticisms were forgotten by the profession, not because they were wrong but because of the key role played by Robert Solow in the field. Today, these criticisms are not even mentioned when students are introduced to (neoclassical) growth theory, which is presented in most economics departments and macroeconomics textbooks as the only theory worth studyin