In Search of Aggregate Production Function Specification

This paper re-estimates the constant-elasticity-of-substitution (CES) specification of aggregate production function using newly constructed annual data on physical and human capital stocks for a panel of 134 countries observed over the period 1960-2011. In our estimation, we allow parameters to be heterogeneous across countries. Our estimation accounts for endogeneity of inputs, cross-section dependence, variable non-stationarity and serial correlation. Despite the empirical consensus in the literature in favour of CES specification, our results suggest that there is no convincing evidence to reject the Cobb-Douglas specification as an aggregate production function specification