Relationship between Real GDP and Labour & Capital by Applying the Cobb-Douglas Production Function: A Comparative Analysis among Selected Asian Countries

The paper makes an attempt to explore the relationship between real GDP (the dependent variable) and labour and capital (the independent variables) in case of Bangladesh, India, China, Malaysia and Thailand using the Cobb- Douglas production function and to make a comparison among Bangladesh and the selected countries. The study uses a time-series data covering the period of 1990- 2014. Ordinary Least Square (OLS) is used to estimate the model. To test for autocorrelation, Newey-West test has been applied to obtain reliable parameter estimates. The results show that there is a strong positive and significant relationship between labour and capital and real GDP in case of all countries selected. The value of R2 ranges between 0.930 to 0.988, indicating that most of the variations in real GDP in all these countries are explained by labour and capital alone. The results are statistically significant at 1% and 5% level of significance. The study also shows that there are increasing returns to scale in the production process in case of all the selected countries. It has been found that a 100% increase in labour will increase real GDP by 301% and a 100% increase in capital will increase real GDP by 40%. The contribution of both labour and capital is the highest in case of China followed by Bangladesh. The contribution of capital is lowest in case of Thailand (10%) and Malaysia (15%) because they both emphasized investing in human capital by giving importance to education, health and training of their labour force. The study concludes that investing in the huge labour force especially the female labour force in case of Bangladesh and India and proper use of capital by trained labour and management are essential to sustain the increasing growth process in these countries.