The Time Augmented Cobb-Douglas Production Function

Abstract

The main objective of this paper is to propose and verify a time augmentation of the Cobb-Douglas production function parameters which should be able to capture changing conditions over time. The parameters are estimated via the nonlinear least squares method. As data a time series including production and its sources, labour and capital, in the construction industries of six Central European countries for the period 1995-2015 is used. Our results, based on calculation of R2 and Theil's U, prove that the models containing the time augmented parameters are better than the basic one. Also a verification of evaluated models using the economic reality for each country is given. In addition to the superiority of the time augmented models, these are applicable to distinguish the specifics of the development of productivity in individual countries.