Annals of the University of Oradea: Economic Science (Jul 2015)
ESTIMATING THE COBB DOUGLAS PRODUCTION FUNCTION INCLUDING THE EXPORT AND OPENNESS IN THE CASE OF ROMANIA
Abstract
Economic convergence theories are closely related to economic growth theories. The first to study the economic growth phenomenon were the classics A. Smith, D. Ricardo, Th. Malthus, whose models of so-called classic models, do not take into account the contribution of technical progress in increasing production per capita. In order to analyze the convergence process, as a result of economic growth, a series of studies have been created to check the convergent or divergent nature of economies. Thus, in order to identify present sources of economic growth for Romania in our study we have used the Cobb-Douglas type production function. The variables that are the base of this model are represented by work factors and capital stock, to which we have added two explicative variables of economic growth: export and the openness degree of the economy. The two economic growth variables have been included in the model due to their favorable influence on the Solow residue. To estimate this production function, quarterly statistical data from the period between 2000 – first quarter and 2014 – fourth quarter have been used; the source of the data was Eurostat. As to what the first estimated model is concerned, the Cobb-Douglas production function including the export variable are both valid in Romania’s case, this have the parameters of the exogenous variables significantly different from zero, while the second estimated model, which contains the openness variable, is not valid. Its independent variable coefficient is not significantly different from zero, at the level of the entire population. This shows us that the inclusion of the degree of openness of the economy variable in the model affects the significance degree of the model and in order to validate it, the variable must be eliminated. Therefore, we can state that in Romania an increase of the openness degree of the economy due to capital imports would not generate an improvement in what type of technologies are used.
