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Publications on Accounting identity

There are 2 publications for Accounting identity.
  • Problems with Regional Production Functions and Estimates of Agglomeration Economies


    Working Paper No. 725 | May 2012
    A Caveat Emptor for Regional Scientists

    Over the last 20 years or so, mainstream economists have become more interested in spatial economics and have introduced largely neoclassical economic concepts and tools to explain phenomena that were previously the preserve of economic geographers. One of these concepts is the aggregate production function, which is also central to much of regional growth theory. However, as Franklin Fisher, inter alios, has shown, the conditions necessary to aggregate microproduction functions into an aggregate production function are so stringent that in all probability the aggregate production function does not exist. This paper shows that the good statistical fits commonly found empirically are solely due to the use of value data and an underlying accounting identity. The result is that the estimates obtained cannot be regarded as providing evidence of the underlying technological structure of the spatial economy, including the aggregate elasticity of substitution, the degree of returns to scale, and the rate of technical progress.

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    Author(s):
    Jesus Felipe John McCombie

  • Aggregate Production Functions and the Accounting Identity Critique


    Working Paper No. 718 | May 2012
    Further Reflections on Temple’s Criticisms and Misunderstandings

    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.

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    Associated Program:
    Author(s):
    Jesus Felipe John McCombie

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