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and x represent the log of per worker inputs of physical capital, human capital, and

infrastructure capital respectively. The term represents a random error.

By defining everything in per worker terms we rule out economies of scale at the
aggregate level that may in fact be important for measuring the effect of infrastructure
(Morrison and Schwartz (1994)). For simplicity, we include infrastructure as a normal
factor of production, ignoring the possible effects of infrastructure on the long growth rate
of technology and total factor productivity that are examined in Duggal, Saltzman and
Klein (1999). We also assume random errors in output around our production function,
rather than allow for a stochastic frontier approach as used by Mullen, Williams and
Moonmaw (1996). The motivation for our straightforward approach to the production
function is that it allows us to use techniques that control for reverse causality. Since it is
reverse causality that is the major issue for the credibility of aggregate production
functions, this seems worthwhile, even if it is at the cost of using a simple functional form.
We allow the production function, f, to take two different forms. Our first
approach is to assume that the underlying production function is Cobb-Douglas, so that, in
logs, we have
f (k it , hit , xit ) k it hit x it .


A second approach is to assume a more complex functional form given by

f (k it , hit , x it ) 1 k it 1h 1 xit 2 k it2 2 h it2 2 x it2 kh k it h it kx k it x it hx hit x it . (3)

This variant of the trans-log production function allows for different degrees of
substitutability and complementarity between the different types of capital. However, by
using capital per worker variables we again impose constant returns to scale and are ruling
out the interaction effects between each type of capital and labor that would appear in a
standard trans-log specification. The larger the number of variables to be estimated, the