Aggregate Production Function, Its Determinants and Their Impacts on Aggregate Output: Case of Bahrain

Abstract

Aggregate Production Function, Its Determinants and Their Impacts on Aggregate Output: Case of Bahrain Ibrahem H. Alezzee Abstract In this paper an attempt is made to examine and analyse the influence of a few determinants of the level of real output (RGDP) of Kingdom of Bahrain, using Aggregate Cobb-Douglas Production Function (APF). Besides the inputs of labor (LF) and capital accumulation (GCF), two other factors believed to have essential impacts on the level of aggregate output, namely expenditure on educating (EDUR) and life expectancy (LIFEXP) are added to the traditional Cobb-Douglas production function as determinants of real output. Time series data on all the relevant variables have been used and tested for stationarity and association among them, using Augmented Dickey-Fuller test of unit root and Co-integration test. The null hypothesis of unit root in Augmented Dickey-Fuller test is rejected and we conclude that the data are stationary at first difference. Co-integration test indicates only long-run associations amongst the variables in the analysis. VAR technique is used to examine the variability of the RGDP of Bahrain. Important finding of this analysis is that all inputs – capital accumulation (GCF), labor force LF), expenditures on education (EDUR) and life expectancy - have significant impact on the level of GDP, but in varying degrees. LF has the most powerful influence while GCF has the least as suggested by the elasticity of output with respect to labor force and capital formation. Moreover, increasing return to scale is indicated. Full Text: PDF DOI: 10.15640/jibe.v2n3a6