DDG

Mary Ann Magadia (talk) 03:49, 14 August 2017 (UTC) Hello DDG, would like to resubmit this article on Jesus Felipe. Could you kindly reconsider?

Jesus Felipe (born 1962, Madrid, Spain) is Advisor to the Chief Economist in the Economic Research and Regional Cooperation Department of the Asian Development Bank (ADB), Manila, Philippines. He is also a member of the Editorial Board and the Managing Editor of the Asian Development Review.

Education, career and research

Jesus Felipe holds a Ph.D. from the University of Pennsylvania. He has been with ADB since 1996, and also held academic positions with the Georgia Institute of Technology and with the Hong Kong University of Science and Technology.
Jesus Felipe has spent over two decades studying the empirical foundations of the neoclassical aggregate production function (APF). His analysis is well recognized to have undermined the credibility of econometric estimates of aggregate production functions (or variants of it, such as growth accounting exercises), and of total factor productivity estimates. He has also published extensively in academic journals on different aspects of Asia’s development, productivity and structural transformation; as well as books on labor markets, structural transformation and industrial policy, several of which have been widely cited.

Felipe and McCombie’s critique of the aggregate production function

After working for over two decades studying the foundations of the aggregate production function, Jesus Felipe and John McCombie (University of Cambridge), published in 2013 their book, “The Aggregate Production Function and the Measurement of Technical Change: Not Even Wrong.” The background to Felipe and McCombie’s critique is the well-known aggregation problem in production functions: aggregate production functions cannot be derived by aggregating microeconomic production functions, except under extremely restrictive conditions, which in all likelihood are not satisfied by actual economies. The question is then: what do researchers obtain when they use (aggregate) data on output, employment and capital and claim that they are estimating a production function? Felipe and McCombie have shown that because at the aggregate level researchers have to use constant-price value data (deflated monetary values), instead of physical quantities (e.g., number of automobiles), the series of output, employment and capital stock are related through an accounting identity (namely, value added equals definitionally the wage bill plus the operating surplus). This identity determines the results (e.g., elasticities equal to the factor shares and, consequently, constant returns to scale) and the often extremely high statistical fits. This way, Felipe and McCombie expose the falsity of the plausible statistical results of aggregate production functions. Applied work on aggregate production functions does not use the physical data (as it should be) but instead uses constant-price value data, which due to the underlying accounting identity, gives seemingly acceptable results. Consequently, they show that the aggregate production function does not stand for a behavioral relationship that can be disproved statistically.

The book was critically acclaimed by notable economists:

‘This is a very important book. Proofs that aggregate production functions do not exist have been around for more than 50 years. This casts doubt not only on macroeconomic theory but also on empirical work and policy. Yet, this has not deterred macro-economists. The authors show in great detail that the apparent “fit” of such functions to value-based data is a tautology and not a proof that such aggregates exist. One hopes that the profession will finally take note.’ – Franklin M. Fisher, Massachusetts Institute of Technology, US

‘There are none so blind as those who will not see. For decades now John McCombie and Jesus Felipe have been publishing papers which draw out the implications of the conceptual vacuousness that characterises fitting aggregate production function specifications to data to test the validity of the marginal productivity theory of distribution, a critique first developed by Henry Phelps Brown and Herbert Simon. By careful empirical and theoretical work, they have reached the conclusion that the huge literature on aggregate production functions and technical progress is “not even wrong” because predictions cannot be tested, that they are only variations on manipulations of national accounting identities. Perhaps this time it really will be “different”, the scales will fall from the profession’s eyes. I certainly hope so.’ – G.C. Harcourt, Jesus College, Cambridge, UK and University of New South Wales, Australia

‘This is an extremely important and long-awaited book. The authors provide a cogent guide to all that is wrong with the theory and empirical applications of the discredited notion of an aggregate production function. Their critique has devastating implications for orthodox macroeconomics.’ – Anwar Shaikh, New School for Social Research, US