Testing the Existence of Cobb-Douglas and CES Production Functions in Nigeria
Journal Title: International Journal of Academic Research in Business and Social Sciences - Year 2017, Vol 7, Issue 3
Abstract
Following the numerous arguments for and against the production functions, this research work tries to find out if the production functions, particularly the Cobb-Douglas and Constant Elasticity of Substitution (CES) production functions holds for Nigeria using an annual time series data from 1970-2012. The Cobb-Douglas and CES production functions which are originally non-linear were linearized and the Ordinary Least Square (OLS) methodology was used. This study also carried out Error Correction Models for each of the production functions in order to know how disequilibrium in output adjusts in the short run for both production functions. It was discovered that both production functions are suitable for the Nigeria economy. The Cobb-Douglas as well as constant elasticity of substitution production function exhibit increasing returns to scale. The results also showed that labour contributes more to output than capital does. Again, for both production functions their error correction models showed that a greater fraction of disequilibrium in output is adjusted in the short run. For the error correction model for Cobb-Douglas it was shown that 87% of disequilibrium in output is adjusted in a year while that for constant elasticity of substitution production function showed 88% of disequilibrium in output is adjusted in a year. The study therefore concludes that the Cobb-Douglas and constant elasticity of substitution production functions are appropriate for the Nigerian economy. The study recommends that both production functions can be used to make forecast in Nigeria.
Authors and Affiliations
David Iheke Okorie
Keywords
Related Articles
- EP ID EP604047
- DOI 10.6007/IJARBSS/v7-i3/2732
- Views 73
- Downloads 0
Ethical Issues in Recruitment, Selection and Employee Performance in Public Universities in Nyeri County, Kenya
Ethics plays a crucial role in recruitment and selection because human resource is the key source of competitive advantage for an organization if properly hired and managed. It is therefore important to put in place ethi...
Talent Shortage: Talent Development as a Tool to Thwart it Globally
Scarcity of global talent is a significant challenge faced by the multinational companies globally. Effective implementation of Global Talent Management (GTM) is suggested essential for talent shortage issues. Therefore...
A Review of Board of Director, Shariah Supervisory Board and Zakat Distribution Performance in Malaysia
Recently, quality board of director is needed by organization in order to ensure the board function is well direct to meet the best performance. Meanwhile in focusing of zakat institutions, the shariah supervisory board...
A Comparison between the Styles of Transformational Leaders and Authentic Leaders in Crisis Management
Crisis leadership research is important owing to the unpredictability, cost, duration and intensity of the crisis. Leaders all around the world struggle with the challenges of crisis (Prewitt & Weil, 2014), which demonst...
The Influence Of Social Changes On The Islamic Legal Ruling Concerning Travelling Women
A society’s changing social life occurs due to changing times that triggers a variety of social change factors. Considering the social change that is taking place, issues pertaining to the needs of a Muslim woman to trav...