Application of Non-Linear Cobb-Douglas Production Function with Autocorrelation Problem to Selected Manufacturing Industries in Bangladesh

Abstract

In developing counties, efficiency of economic development has been determined by the analysis of industrial produc-tion. An examination of the characteristic of industrial sector is an essential aspect of growth studies. The growth of a country can be measured by Gross Domestic Product (GDP). GDP is substantially affected by the industrial output. In-dustrial gross output is mainly a function of capital and labor input. If the effect of labor and capital input to output is at a satisfactory level in an industry or in a group of industries, then industrial investment will increase. As a result, the number of industries will increase, which will directly affect GDP and also will decrease the unemployment rate. This is why, industrial input-output relationship is so important for any industry as well as for the overall industrial sector of a country. To forecast the production of a firm is necessary to identify the appropriate model. MD. M. Hossain et al. [1] have shown that Cobb-Douglas production function with additive errors was more suitable for some selected manu-facturing industries in Bangladesh. The main purpose of this paper is to detect the autocorrelation problem of Cobb-Douglas production model with additive errors. The result shows that autocorrelation is presented in some manufactur-ing industries. Finally, this paper removes the autocorrelation problem and re-estimates the parameters of the Cobb-Douglas production function with additive errors.