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Cobb-Douglas Production Function: The Case of a Converging Economy

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Abstract

The Cobb-Douglas production function is often used to analyse the supply-side performance and measurement of a country’s productive potential. This functional form, however, includes the assumption of a constant share of labor in output, which may be too restrictive for a converging country. For example, labor share in the Czech Republic gradually increased over the last decade. In this paper, we test whether this fact renders the application of the Cobb-Douglas production function unreliable for the Czech economy. The authors apply a more general form of production function and allow labor share to develop according to the empirical data. For the period 1995–2005, the authors do not find significant difference between the calculation of the supply side of the Czech economy by the Cobb-Douglas production function and a more general production function.

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  • Dana Hájková & Jaromír Hurník, 2007. "Cobb-Douglas Production Function: The Case of a Converging Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(9-10), pages 465-476, October.
    • Handle: RePEc:fau:fauart:v:57:y:2007:i:9-10:p:465-476
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    More about this item

    Keywords

    potential output; production function; labor share; total factor productivity;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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