Aggregate Output, Capital, and Labor in the Post-War U.S.
Posted: 25 Feb 2005
New estimates of an aggregate long-term production function for the post-war U.S. economy are reported. The results indicate that this long-term aggregate production function exhibits a slight, but statistically significant, increasing returns to scale. Since virtually all econometric growth studies assume constant returns to scale, my finding raises serious doubts about the validity of this common practice. I also find that since the war real output has become more sensitive to changes in capital and less sensitive to changes in labor. In particular, I show that the long-run capital and labor elasticities of real output are both in the range of 0.44-0.55. Similar estimates for the capital and labor elasticities of output from earlier studies covering pre-war and the inter-war periods are 0.25 and 0.75, respectively.
Keywords: Aggregate production function, increasing returns to scale, output sensitivity to changes in capital and labor, capital and labor elasticities
JEL Classification: E23
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