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Using an Aggregate Production Function
Pranjul Bhandari's use of the Cobb-Douglas production function in "Decoding the Growth Target" (EPW, 16 March 2013) suffers from two sets of interrelated methodological problems. The first one is at the theoretical level and the second one is empirical in nature.
The authors wish to acknowledge the helpful comments of Aashish Gupta, Nilesh Kumar, Tanya Sethi and Lima Walling.
The use of the aggregate production function attracted severe criticisms in the 1960s (for a detailed account, see Harcourt 1972). Joan Robinson (1953-54) started the debate on capital theory which concluded with Samuelson (1966) admitting to the charge against the universal validity of aggregate productions functions outside a one-commodity model. Capital theory in general and the uncritical employment of the Cobb-Douglas production function were discussed at the 47th annual conference of the Indian Economic Association held at Baroda in December 1964 (see Hazari 1965: 69). Most of the concerns raised seem to have fallen into oblivion (cf Cohen and Harcourt 2003). In this response, we only focus on Bhandari’s use of the aggregate production function and we do not appraise her policy suggestions which merit a separate discussion. This note is divided into three sections and a conclusion. Section 1 presents a quick summary of Bhandari’s use of the aggregate Cobb-Douglas production function. Section 2 highlights the methodological issues raised by capital theory for aggregate production functions. In Section 3, we critically evaluate the author’s calibration of the aggregate production function so as to fit India’s growth path.
1 Use of Cobb-Douglas Function
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