Measuring Contributions of Labor, Capital and Technology in Indian Manufacturing Sector - A Cobb Douglas Production Function Approach

Abstract

The production function method for the measurement of potential output growth takes into account different sources of an economy's productive capacity, namely of labour, capital and total factor productivity later on including information on technological and allocative efficiency. A production function shows the technological relationship between the maximum output obtainable from a given set of inputs and the relationship between inputs in the existing state of technological change. In this paper , a Cobb Douglas form of production function has been used to measure the contribution of labour, capital and technology for Indian Economy. The basic data source of the study was Annual Survey of Industries (ASI) published by Central Statistical Organization (CSO), Government of India covering the period from1999-00 to 2010-11. Findings of the statistical analysis are that out of five sectors, three sectors namely Public Limited Company, Government Department Enterprises and Aggregate Corporate sector had recorded increasing returns to scale and the remaining sectors namely the Private Limited company and the Public corporation recorded decreasing returns to scale. Results also show that percentage share of wages was high compared to the percentage share of capital in all the sectors.