The Shape of Aggregate Production Functions: Evidence from Estimates of the World Technology Frontier

Abstract

The article estimates the aggregate production function at the World Technology Frontier on the basis of annual data on inputs and output in 19 highly developed OECD countries in 1970-2004. A comparison of results based on Data Envelopment Analysis and Bayesian Stochastic Frontier Analysis uncovers a number of significant discrepancies between nonparametric estimates of the frontier and parametric (Cobb-Douglas and translog) aggregate production functions in terms of implied technical efficiency levels, partial elasticities, returns to scale, and elasticities of substitution.

Potential Growth: A Global Database

“…Hence, it may overstate the capital stock during downturns.17 The results are robust to using GDP per capita instead of GDP per capita in percent of advanced-economy GDP per capita. GDP per capita relative to a frontier (advanced economies) is used here to proxy the catch-up effect highlighted in the literature on stochastic frontier analysis(Growiec et al 2015).…”