Annals of the University of Oradea: Economic Science (Jul 2015)
ESTIMATING THE PRODUCTION FUNCTION IN THE CASE OF ROMANIA METODOLOGY AND RESULTS
Abstract
The problem of economic growth is a headline concern among economists, mathematicians and politicians. This is because of the major impact of economic growth on the entire population of a country, which has made achieving or maintaining a sustained growth rate the major objective of macroeconomic policy of any country. Thus, in order to identify present sources of economic growth for Romania in our study we used the Cobb-Douglas type production function. The basic variables of this model are represented by work factors, capital stock and the part of economic growth determined by the technical progress, the Solow residue or total productivity of production factors. To estimate this production function in the case of Romania, we used the quarter statistical data from the period between 2000 – first quarter and 2014 – fourth quarter; the source of the data was Eurostat. The Cobb-Douglas production function with the variables work and capital is valid in Romania’s case because it has the parameters of the exogenous variables significantly different from zero. This model became valid after we eliminated the autocorrelation of errors. Removing the autocorrelation of errors does not alter the structure of the production function. The adjusted R2 determination coefficient, as well as the α and β coefficients have values close to those from the first estimated equation. The regression of the GDP is characterized by marginal decreasing efficiency of the capital stock (α > 1) and decreasing efficiency of work (β < 1). In our case the sum of the α and β coefficients is below 1 (it is 0.75) as well as in the case of the second model (0.89), which corresponds to the decreasing efficiency of the production function. Concerning the working population of Romania, it registered a growing trend, starting with 2000 until 2005, a period that coincided with a sustained economic growth.
