Neoclassical Production Function Research Articles

Factors Influencing Economic Growth in Nigeria: A Growth Accounting Framework Analysis

This research examines the drivers of economic expansion in Nigeria from 1960 to 2017, employing the growth accounting methodology based on the classical neoclassical production function. The focus is on assessing the contributions of capital, labor, and total factor productivity (TFP) to Nigeria's economic growth. Furthermore, to determine the interrelations among capital, labor, TFP, and economic growth, correlation coefficients among these variables were calculated. The correlation analysis indicated positive associations between the growths of capital, labor, TFP, and economic growth. Moreover, findings from the growth accounting analysis highlighted capital as the primary contributor to economic growth in Nigeria throughout 1961-2017. In specific sub-periods, capital remained the dominant growth driver in the initial phase (1961-1980), while labor took precedence in the 1981-2000 period, with capital following and TFP growth showing a decline, as evidenced by its negative contribution. Nonetheless, TFP emerged as the critical factor driving economic growth from 2001-2017. Consequently, the study suggests the implementation, maintenance, and enhancement of policies that promote physical capital, human capital, and technological advancements through both domestic and foreign investments, recognizing their essential roles in fostering economic growth and development.

Modeling of Regional Economic Growth in the Conditions of Simulation of Scientific and Technical Revolution (on the example of the Republic of Tatarstan)

The issues of the structural organization of productive factors that trigger and intensify the economic dynamics of the regions are quite well worked out in the scientific community today. Without going into a detailed review of derivative approaches that offer modifications to the models discussed above, it must be unequivocally stated that the basic factors of economic dynamics included in the neoclassical production functions are labor, fixed capital, and scientific and technological progress (STP). At the same time, it is important to take into account that when taking into account and including in the models of production functions of scientific and technical progress, it is often understood as the potential for the creation and diffusion of innovations in the economic environment. In this work, scientific and technical progress is understood as a set of human, financial, infrastructural and institutional resources that determine the overall innovative capabilities of the region and the level of its effectiveness in the field of science and technology to solve problems in the field of ensuring the qualitative and structural parameters of economic growth and development, increasing competitiveness in the meso -, macro and global level. Relying on this approach to the definition, as well as on the methodological tools for measuring STP proposed by the authors, the study attempts to construct a Solu production function. Based on the results of the assessments, the relevant parameters of the influence of productive factors on the GRP dynamics were established (on the example of the Republic of Tatarstan), and patterns were identified that prove the priority of scientific and technological progress in shaping the prospects for economic dynamics in the conditions of the fourth industrial revolution.

Young Duality for Variational Inequalities and Nonparametric Method of Demand Analysis in Input–Output Models with Inputs Substitution: Application for Kazakhstan Economy

The global macroeconomic shocks of the last decade entail the restructuring of national production networks and induce processes of input substitution. We suggest mathematical tools of Young duality for variational inequalities for studying these processes. Based on the tools we provide, a new mathematical model of a production network with several final consumers is created. The model is formulated as a pair of conjugated problems: a complementarity problem for optimal resource allocation with neoclassical production functions and the Young dual problem for equilibrium price indices on network products. The solution of these problems gives an equilibrium point in the space of network inter-industry flows and price indices on goods. Based on our previous results, we suggest an algorithm for model identification with an official economic statistic in the case of constant elasticity of substitution production functions. We give an explicit solution to the complementarity problems in this case and develop the algorithm of the inter-industry flows scenario projection. Since the algorithm needs the scenario projection of final sales structure as its input, we suggest a modified methodology that allows the calculation of scenario shifts in final consumer spending. To do this, we employ the generalized nonparametric method of demand analysis. As a result, we develop new technology for scenario calculation of a national input–output table, including shifts in final consumer spending. The technology takes into account a substitution of inputs in the network and is based on officially published national statistics data. The application of the methodology to study tax collection scenarios for Kazakhstan’s production network is demonstrated.

Two currencies – Rethinking energy and the economy

Beginning with the marginalist revolution of the late nineteenth century, neoclassical economic theory developed by borrowing mathematical constructs from physics, but not the physics itself. Several scholars, including early ecological economists, recognized there was a need to incorporate energy and other resources into economic theory. In recent decades there have been attempts to fuse energy into aggregate neoclassical production functions, but these suffer from several challenges: they do not hold at an aggregate level; do not capture the dynamic evolution of the economy; ignore the universal flow of energy through all of the economy; and there is interdependency between variables. These challenges are largely addressed by energy-linked computable general equilibrium models, although their model formulations still understate the role of energy as the lifeblood of economies.Here I argue that the economy can simultaneously be studied in terms of physical units and monetary units. I contrast physical science and social science views on energy in economies, and demonstrate how thermodynamics and value theory can be used harmoniously with an example of the energy basis to capital formation in the United States. When used to study major transformation of energy systems, equations, or metrics, are required for each type of energy carrier in the economy.

Does economic growth stimulate energy consumption? New evidence from national and regional levels in China

A detailed investigation of the nexus between economic growth and energy use is imperative for formulating sustainable development policies. In this study, we examine panel cointegration and causality relations among economic growth, energy use, capital stock, and labor in 30 Chinese provinces between 2000–2019. We conduct a comprehensive empirical analysis based on panel modeling and a neoclassical production function. The findings of the second-generation panel unit root and co-integration tests reveal that these variables have long-term co-integration linkages. We then perform a panel cointegration estimation using the fully modified ordinary least squares technique and find that total energy consumption, electricity consumption, capital stock, and labor significantly influence economic growth at the national and regional levels in China. Moreover, the outcomes of the Dumitrescu-Hurlin causality test indicate the existence of a two-way causal nexus between economic output and total energy consumption at the national level, but only a causal link from GDP to total energy use in the eastern and central regions. Conversely, a causality from total energy use to economic output is identified in the western region. Finally, we provide policy implications for the sustainable development of both energy and the economy at the national and regional levels.

Do Reforms in Indonesia Affect Economic Growth? Learn Ten Years from 1999-2008 Period

Indonesia had observed a drastic drop in its economic growth in 1998 after the monetary crisis in mid-1997 but grew back slowly starting in 1999. Since then, the Indonesian economy has been moving slowly with low growth. From this phenomenon, this study aims to see which sectors positively influence economic growth. This research uses a quantitative method in which a model of economic growth is built as a linear regression model in a time series. The economic growth model is formed based on the neoclassical production function approach from the supply side. The economic reforms in Indonesia significantly impacted economic growth, although they had a negative effect in the first ten years. Investment growth and defense spending have a positive influence on national economic growth. Meanwhile, non-defense budget growth did not affect economic growth during the ten years before and after the reform. From these results, the best way to increase Indonesia’s economic growth is to create an atmosphere that encourages both foreign and domestic investors who want to invest in Indonesia with conditions that are conducive for investors.
 Keywords: economic growth, economic reforms, investment, government budget, defense expenditure

Sustainable developments, renewable energy, and economic growth in Canada

AbstractThe object of this paper is to investigate the dynamic causal relationship between economic growth and renewable energy in Canada. The causal relationship is examined under the neoclassical production function framework. We employed a panel autoregressive distributed lag model controlling for different states of the economy by incorporating a dummy variable, which indicates the economic peak and trough. The data set consists of annual real GDP, capital formation, labor, and electricity generation by renewables for nine Canadian provinces covering from 1981 to 2015. The empirical results find that there is a unidirectional causality from renewable energy to economic growth in the long run. In the short run, a unidirectional causality going from renewable energy to economic growth only during the expansion period is observed. Our study suggests that renewable energy policies should be designed and implemented in a way that takes into account the nonlinear relationship between renewable energy and economic growth. This could involve promoting the development and deployment of renewable energy sources as part of their economic stimulus packages during economic upturns.

Only under good governance does public debt improve national income: Evidence from dynamic panel threshold model for Sub-Saharan African countries

This paper aims to explore the mediating role of governance in the relationship between per capita income and public debt in Sub-Saharan Africa. From a neoclassical production function and a dynamic panel threshold model, the paper estimates a model based on a sample of 39 countries in Sub-Saharan Africa over the period of 2002 to 2019. Our results indicate a non-linear relationship between per capita income and public debt, which is influenced by the quality of governance. In particular, the impact of public debt on per capita income depends on the level of governance quality. A governance threshold is identified, showing a minimum level of good quality of governance from which public debt has a positive effect on income. Moreover, the paper identified the most critical governance dimensions for optimizing the relationship between public debt and per capita income and provided policy suggestions.

INFRASTRUCTURE IN THE FRAMEWORK OF PRODUCTION FUNCTIONS: EVIDENCE OF EU MEMBER STATES AT THE REGIONAL LEVEL

Infrastructure development is seen as an essential tool for boosting economic growth. Infrastructure is funded under various programs to contribute to economic growth, and reduce regional disparities. Evaluations of the results achieved have to be carried out to develop efficient infrastructure development and investment allocation policy. This is highlighted in both the reports of policymakers and scientific publications. The main limitation of these studies is that they focus on assessing the return on infrastructure development at the national level, leaving the question of what outcomes were achieved at the regional level. This article aims to evaluate the economic outcomes of transport and ICT infrastructure development at the NUTS 2 regional level in the EU-28 countries, using 2000–2019 data. The research is based on the neoclassical production function complementing it with an infrastructure indicator. Based on previous research, it is hypothesized that economic outcomes may depend on the institutional environment of the region. Consequently, the research model specification is supplemented by government quality as a possible moderator. Research findings suggest just motorway and internet infrastructure are significantly positively related to production outcomes. Estimations show higher government quality and less corruption are related to the bigger production output of the infrastructure input.

The Stochastic Model of Technical Change and Profit Rates: Korean Economy (Manufacturing Sector: 1970–2015)

This article aims to reconstruct major macroeconomic variables, including the profit rate in the Korean economy, by using the stochastic model of technical change. This model needs no a priori technological patterns concerning available technologies, such as the neoclassical production function or fixed coefficient technologies. This article provides a summary of the rate of profit, the productivity of capital, and labor productivity in the Korean manufacturing sector between 1970 and 2015. A multiple structural break model detects possible regime changes in the growth rate of each type of productivity. The innovation sets for the simulation are created based on this test. Furthermore, the article reconstructs the rate of profit, the productivity of capital, and labor productivity in Korea’s manufacturing sector and discusses a catching-up process by Korea with the United States, which the model reproduces. JEL Classification: E11, E17, O14, O33

Financial destabilization

This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy in which a representative firm operates one production sector with a neoclassical production function. Entrepreneurs receive individual-specific productivity shocks in each period. Entrepreneurs who draw higher productivity shocks become capital producers and borrow production resources in the financial market, whereas entrepreneurs who draw lower productivity shocks become lenders. Capital producers face financial frictions and can borrow only up to a certain proportion of their funds. Under an empirically plausible elasticity of substitution between capital and labor, as financial frictions are mitigated, the economy loses stability, and a flip bifurcation occurs at a certain level of financial frictions. In some cases, a cycle with more than two periods and complex dynamics arise as period-doubling bifurcations repeatedly occur. In any case, the amplitude of fluctuations increases as financial frictions faced by capital producers are mitigated and is maximized when they are eliminated. These outcomes imply that financial innovations are likely to destabilize an economy.

Enhanced Agriculture Insurance with Climate Forecast

This paper presents a model to study how climate forecasts and the agricultural production function affect the effectiveness of government policies (disaster bailouts and agricultural income tax) and agricultural insurance (both compulsory and voluntary). In the base model with a neoclassical production function, we find that these programs could increase farmers’ expected profit and reduce its volatility. Furthermore, credible climate forecasts enable farmers, insurance companies, and governments to make more informed cultivate and insurance decisions, and therefore increase the benefit of these insurance programs to farmers. The results suggest that climate forecasts, combined with agriculture policies and insurance, can play an important role in securing farmers’ profits and providing climate risk management guidance for agriculture production.

Impact of fossil fuels and renewable energy consumption on economic growth in Paris Club Countries

The relationship between economic growth (in terms of GDP) and renewable energy (RE) and nonrenewable energy (NRE) consumption was investigated in 20 countries featured on the Renewable Energy Country Attractiveness Index list, also known as the Paris Club. The effect of both RE and NRE consumption on economic growth is discussed in the growth model based on the neoclassical production function. Labor and capital, which are important dynamics of growth, are also considered in the model. Granger causality and panel vector autoregression analysis are performed for the period 1991–2016. The results show that neither RE nor NRE consumption has a positive effect on economic growth. In reality, a 1% increase in RE consumption will reduce the GDP growth by 0.14%. For the effect of GDP growth on energy types, if growth increases by 1%, NRE consumption increases by 5.54%. If economic growth increases by 1%, a reduction of 1.73% occurs in RE consumption. In contrast, a causal link between both types of energy to growth has not been determined. There is no statistically significant coefficient of NRE and capital factors on GDP. A mutually positive and statistically significant relationship was determined between labor and growth. According to the results of variance decomposition, the basic dynamic of growth is itself: over a ten-year period, growth was affected by itself by 98%.

Applied Mathematics Model: The Effect of National Defense on Economic Growth seen from the Supply Side

The study aims to develop a mathematical model that can explain the effect of national defense on economic growth from various works of literature and developments. The overall impact of military spending on growth can be analyzed by dividing the economy into sectors. We wish to demonstrate the formation of a general mathematical model. The model building is based on the neoclassical production function approach developed by Feder and Deninson. The source of Deninson's growth model uses a supply-side description of changes in aggregate output. It describes aggregate growth in terms of changes in capital and labor. The resulting aggregate growth equation shows the combination of externality and productivity effects.

EXPORT–GROWTH NEXUS IN THE KINGDOM OF SAUDI ARABIA: A NONLINEAR ARDL APPROACH

The study examines the asymmetric influence of exports on economic growth in the Kingdom of Saudi Arabia using an augmented neoclassical production function incorporating export earnings and oil rent. It uses time-series yearly data from 1985 to 2019 published by the World Bank, employs the nonlinear autoregressive distributed lag (NARDL) approach and Toda–Yamamoto (T–Y) Granger causality test. The outcomes reveal a long-run cointegration among economic growth, exports, oil rents and other variables. Both the exports and oil rents have unveiled asymmetric impacts on economic growth. The overall impact of exports on economic growth remains robust; its positive shock maintains neutrality, while negative shock yields affirmative influence on economic growth in the long run. Similarly, the positive components of oil rents remain neutral, while the negative shocks negatively affect economic growth, with an overall adverse impact. The T–Y causality unleashes that economic growth causes exports negative shocks, and negative shocks cause positive shocks of exports and a feedback relationship between economic growth and positive shock of exports, and thus, validates the NARDL outcomes and verifies their robustness. The outcomes imply that the Kingdom should expand its exports and enhance its nonoil output through product and market diversification measures.

Papel del capital humano y de las instituciones en el crecimiento económico: Una aproximación al caso de MéxicoDeterminantes del crecimiento económico en México: Hechos y expectativas

La economía mexicana se ha caracterizado por bajos niveles de crecimiento en los últimos años; por consiguiente, es necesario realizar una evaluación de los determinantes sugeridos por la nueva literatura de crecimiento económico. Empleando un modelo de vector de corrección de errores (VEC, por sus siglas en inglés), se estimó una función de largo plazo de los determinantes del crecimiento, medido por el producto interno bruto (PIB) per cápita real. Basado en una función de producción neoclásica, ampliada con variables como el capital humano (medido por la educación formal) e instituciones (medido por el sistema legal y los derechos de propiedad), los resultados sugieren que dichas variables tienen un efecto positivo a largo plazo. Se concluye en la necesidad de un replanteamiento de la política económica, enfocándose fundamentalmente en el impulso a las variables referidas en esta investigación.

A Theory for Building NEO-Classical Production Functions

In this study, we propose a mathematical theory for building neoclassical production functions with homogeneous inputs in both aggregate and per capita terms. This theory is based on two concepts: Euler's equation and Cauchy's condition for first-order partial differential equations. The analysis is restricted to functions that exhibit constant returns to scale (CRS). For the function to meet the law of diminishing marginal returns, we present the necessary and sufficient conditions to be satisfied by the curve that defines Cauchy's condition. In this context, we also discuss the Inada conditions. We first present functions that depend on two inputs and then extend and discuss the results for functions that depend on several inputs. The main result of our research is the provision of a clean and clear theory for constructing neo-classical production functions. We believe that this result may contribute to closing the huge methodological gaps that separate schools of economic thought that defend or reject the use of production functions in economics.

Towards Export-Led Growth in the West Africa Sub Region Economies

The policy of import substitution dominated developing economies especially Sub-Sharan African countries up till 1970. The focus later shifted to pursuing growth through increased export. Recently, countries of the West Africa Sub-region are clamoring for a revisit of growth through import substitution policies. This study therefore delved into the question of whether ECOWAS countries should go for import substitution growth strategy, or to develop strategy that promotes export-led growth, following the law of comparative advantage or a considerable mix of the two strategies. Using an export-augmented neoclassical production function, the study tested how relevant is the Export-led Growth Hypothesis for the ECOWAS sub-region over the period 1980-2014.
 Evidence does not offer a strong support for the Hypothesis in the short run but a strong evidence for improved capital stock and labor causing growth. However, long-run results suggest a significant relationship between export and growth but currently negative. A likely explanation of this negativity is that although exports, in the West African sub-regions has the tendency of increasing growth in the long run along with other factors of production, the present conditions of export, especially manufactured and agricultural exports, is experiencing a kind of “Import surge”. That is the import content of exports is high and the local content is low, thus reducing the spillover or multiplier effects. This was confirmed by the strong bilateral causality between export and import discovered in this study. A policy mix of import substitution and export promotion strategies was recommended for countries in this sub-region. Policies that will promote technological innovation in manufacturing and linkages with local suppliers alongside incentives to produce towards export are imperative. Production towards export should be focused on manufactured and agricultural products where each country has the highest comparative advantage so as to reduce the import content of the export.

The energy-growth nexus revisited: An analysis of different types of energy

This study revisits the nexus between energy consumption and economic growth by considering several energy use types (i.e., total energy, fossil fuel energy, and renewable energy). For this purpose, a dynamic fixed effects (DFE) estimator is applied to the autoregressive distributed lag (ARDL) model built on an extended version of the neoclassical production function. This study examines a global sample of 107 countries during 1996–2014, classified into three subsamples of countries based on income level. Overall, the findings show that, in the short run, the use of total energy and fossil fuel energy significantly and positively contribute to higher income in total and per-capita terms. However, the growth effects of renewable energy consumption appear to vary across subsamples. In the long run, the impacts of energy on economic growth are mostly insignificant, supporting the view that conservative energy policies do not harm economic growth.

Camfil expands Swedish Tech Centre

This study revisits the nexus between energy consumption and economic growth by considering several energy use types (i.e., total energy, fossil fuel energy, and renewable energy). For this purpose, a dynamic fixed effects (DFE) estimator is applied to the autoregressive distributed lag (ARDL) model built on an extended version of the neoclassical production function. This study examines a global sample of 107 countries during 1996–2014, classified into three subsamples of countries based on income level. Overall, the findings show that, in the short run, the use of total energy and fossil fuel energy significantly and positively contribute to higher income in total and per-capita terms. However, the growth effects of renewable energy consumption appear to vary across subsamples. In the long run, the impacts of energy on economic growth are mostly insignificant, supporting the view that conservative energy policies do not harm economic growth.