ESTIMATION OF ECONOMIC GROWTH USING GREY COBB-DOUGLAS PRODUCTION FUNCTION: AN APPLICATION FOR US ECONOMY

Abstract

Purpose- In this paper, we apply the Grey Cobb-Douglas production model to predict the GDP, examine the effects of the variation rate of capital, and labor inputs to economic growth. Many factors contribute to economic growth, such that technological progress, labor force, capital accumulation, the optimal using of sources, energy, institutional innovation ext. In reality, a variate of economic factors often intertwine with each other.

Methodology- The capital and labor are main elements of economic growth. Improving the capital and labor performance plays important role in increase the wealth of a country. Traditionally, Cobb-Douglas (C-D) production model use only capital stock and labor to describe the economic growth. In this study, firstly C-D production function is established and confirmed that the capital and labor has a positive impact on economic growth (GDP). Then GM(1,1) prediction model is used to predict the future values of capital stock and labor force inputs.

Findings- The future GDP values are predicted by the estimated capital and labor values putting into the Cobb-Douglas model. We also obtained the production elasticities of capital and labor inputs. Findings suggest that the contribution rate of capital is 0.403 and labor is 1.094 to economic growth. The sum of the contributions of factors is 1.497 and greater than one.

Conclusion- Findings of this empirical studies shows that percentage of the increase in GDP is greater than that of the increase in capital stock and labor.

Keywords

• Cobb-Douglas production function,economic growth,Grey-prediction model

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