Little bit more than that and we'll talk about that in a second. You could view it as standing for labor, but it's standing for a K is referring to the non-human capital, and of course, capital starts with a C, but they use K for capital. And this term is often knownĪs total factor productivity. And then the factors of production, we've talked about this before, it's human capital, it's technology, and it is regular capital, Tie the factors of production in an economy to the actualĪggregate output of an economy. Or a mathematical model that an economist might use to In the process, I deal with issues related to the nonsphericality of the disturbances, the endogeneity of the regressors, and the nonstationarity of the series involved in the estimation.- In a previous video, we have introduced the idea of an aggregate production function. I present estimates based on both classical regression analysis and time series analysis. economy is not well described by a Cobb-Douglas aggregate production function. When I modify the econometric specification to allow for biased technical change, I obtain significantly lower estimates of the elasticity of substitution. I next show, however, that restricting the analysis to Hicks-neutral technological change necessarily biases the estimates of the elasticity towards one. Consistently with his results, I estimate elasticities of substitution that are not significantly different from one. I first adopt Berndt's (1976) specification, which assumes that technological change is Hicks neutral. I present new estimates of the elasticity of substitution between capital and labor using data from the private sector of the U.S.
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