About Jesus Felipe

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I received my undergraduate degree in Economics from the Universidad Autonoma de Madrid, 1979-1984 (Madrid, Spain). I studied Economics during the political transition of Spain to democracy. It was a very interesting and convoluted period, which coincided with the second oil crisis, the end of the world economic order established after WWII with the collapse of the Bretton Woods System (a few years earlier), the rise of unemployment and inflation, years of stagnation, and the negotiations between Spain and the European Community. It was also the period of the debt crises (the Latin American “lost decade”); and the years of President R. Reagan in the U.S. and Primer Minister M. Thatcher in the U.K. PCs arrived the year I graduated, so I typed my papers the old style, and submitted a few handwritten. I received an education of which I am very proud, and I am grateful to all my Professors during my University years, especially to Antonio Pulido, who taught me econometrics; and to Paloma Sánchez, who taught me how to do research, and asked me to read “Las Venas Abiertas de America Latina” (“Open Veins of Latin America“) by Eduardo Galeano.

I undertook my graduate studies at the International University of Japan (IUJ) , 1989-1991 and at the University of Pennsylvania, 1991-1995. From the latter I received my Ph.D. in Regional Science in 1995. I am also highly indebted to all my Professors at IUJ and to the Japanese Ministry of Education for providing me with the opportunity to study in Japan through a very generous scholarship (Monbusho). At U. Penn. I received an outstanding education. I am more than thankful and indebted for life to Gerry Adams, my mentor and advisor. Gerry, together with Howard Pack, Masa Fujita, Ron Miller, Roberto Mariano, William Ethier, and Hashem Pesaran (who visited U. Penn while I was there), among others, taught me Economics. At U. Penn I had the chance to meet Professor Lawrence R. Klein, Nobel Prize winner in Economics (1980). The International Centre for the Study of East Asian Development (ICSEAD) (Kitakyushu, Japan) provided me with a generous scholarship that allowed me to study in the US. Overall, my life as a student was a very rewarding period and an invaluable experience.

In the mid-1990s, I began exploring the classical models, and became familiar with the efforts that Anwar Shaikh (New School University) has made to revitalize the works of the classical economists (e.g., Adam Smith, David Ricardo, Thomas Malthus, Karl Marx). The classical economists of the 18th and early 19th century were mostly concerned with the analysis and implications of long-run growth, its causes and consequences. Anwar has been a constant source of inspiration for years.

I also became familiar with the work of Franklin M. Fisher at MIT on aggregation in production functions. Frank is the “grandfather” of the aggregation problem. He knows it all! His work has profoundly influenced me. Our Metroeconomica (2003) survey on the topic was a rewarding exercise in discovering some lies my teachers had told me. The aggregate production function is arguably one of the pillars of neoclassical macroeconomics. However, this construct does not have a sound theoretical basis. Aggregate production functions with neoclassical properties (i.e., a well-behaved production function) can be derived theoretically only under very stringent conditions, which actual economies cannot satisfy. Much of standard macroeconomics (growth theory in particular) stands on shaky foundations.

The other important strand of the literature that has crucial implications for the notion of an aggregate production function is the Cambridge-Cambridge debates (see Harcourt 1972 and Cohen and Harcourt 2003 for detailed discussions).

These fundamental results led me to questions such as the following: what do economists obtain (if it is not a production function because it does not exist) when they estimate a regression of aggregate output on aggregate labor and aggregate capital?; do the policy implications of the neoclassical (both old and endogenous) growth models have any relevance?; how much do we really know about why some countries are richer than others?; what implications does this work have for important debates such as that of the sources of growth in East Asia?; or for the discussions about the empirical relevance of the endogenous growth models (e.g., the existence of increasing returns, externalities and market imperfections)?

With this background, John S.L. McCombie at the University of Cambridge and I started working on a research project entitled “The Empirical Foundations of the Aggregate Production Function”. John and I began corresponding in 1994 while I was finishing my dissertation, and since then, our partnership has been most fruitful and has led to a number of publications. I am thankful to John for all he has taught me. The essence of the argument we put forward, extensively discussed in our published papers and in our 2013 book, is as follows: all aggregate production functions do is to approximate the income accounting identity according to which output equals the sum of the wage bill plus total profits. Hence, fitted aggregate production functions tell us very little about the underlying economic processes. Incidentally, this line of work goes back to Anwar Shaik’s 1974 and 1980 papers on the ‘HUMBUG’ production function. Growth accounting exercises suffer from similar problems and the “Solow residual” (total factor productivity growth) is not a measure of technological progress the way it is understood in the neoclassical growth model. All in all, we argue that this model consists of a series of non-refutable propositions (thus, useless), and hence it is inadequate to explain the reality. To study growth we propose to conduct microeconomic work analyzing firms (the source of wealth-creation in capitalist economies); case studies and historical analyses at the country level; and to think of growth as a process of structural change. Frank Fisher and I concluded our survey on aggregation as follows:

“Macroeconomists should pause before continuing to do applied work with no sound foundation and dedicate some time to studying other approaches to value, distribution, employment, growth, technical progress etc., in order to understand which questions can legitimately be posed to the empirical aggregate data” (Felipe and Fisher 2003, Metroeconomica).

I believe all this work has profound implications at both the theoretical and empirical levels for a correct understanding of one of the most important questions that economists have been trying to answer since the days of Adam Smith: why do some countries grow and develop while others fail to do it?