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Comparative Analysis of Economic Performance of SAARC Countries Based on the Estimated Cobb-Douglas Production Function

Deeti Saha
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Deeti Saha: Department of Accounting & Information Systems, University of Dhaka, Dhaka-1000, Bangladesh

International Journal of Science and Business, 2020, vol. 4, issue 10, 39-63

Abstract: This study intends to compare the economic performance and examine the relationship between real GDP (dependence variable) and total labor force and gross fixed capital formation (independent variables) in the case of SAARC (South Asian Association for Regional Co-operation) countries based on the Cobb Douglas production function. To conduct the study, time series data were used from 1980-2017 in four countries and 1990-2017 in four other countries. The ordinary least square method (OLS) was used to measure the linear regression model. The Breusch-Pagan-Godfrey and Breusch-Godfrey Serial Correlation LM Test tests were used to test for heteroscedasticity and autocorrelation. The adjusted R-Squared shows that 96.81%, 99.98%, 99.74%, 99.85%, 99.36%, 97.84%, 99.65%, and 99.89% of the total variation in the dependent variable (GDP) in the case of Afghanistan, Bangladesh, Bhutan, India, Sri Lanka, Maldives, Nepal, and Pakistan respectively are explained by the fitted regression equation. That means the economies of SAARC countries are well defined by the Cobb-Douglas production function. The economies of Afghanistan, India, Sri Lanka, and Nepal show increasing returns to scale. The economies of Bangladesh, Bhutan, Maldives, and Pakistan show decreasing returns to scale. It is also noteworthy that the economies of the four countries show increasing returns to scale; these countries also have better marginal productivity of labor and marginal productivity of capital performance. Per capita GDP, GDP growth rate, labor and capital, the marginal productivity of labor and marginal productivity of capital, the elasticity of labor and capital have been highlighted to compare the economic performance of SAARC countries. The quality of the labor force is essential for sustainable capital investment.

Keywords: Cobb-Douglas Production Function; Returns to Scale; Marginal Productivity of Labor; Marginal Productivity of Capital; Growth Rate; Elasticity of Labor; Elasticity of capital. (search for similar items in EconPapers)
Date: 2020
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