Comparison of Economic Performance between Bangladesh and Vietnam

on the basis of Cobb-Douglas Production Function

1|Page
Table of Contents
1 .Abstract .................................................................................................................................. 3

2 .Introduction ............................................................................................................................ 4

3 .Methodology for collecting Data ........................................................................................... 5

4 .Econometric Methodology ..................................................................................................... 6

5 .Model Specification ............................................................................................................... 7

6 .Transforming Cobb-Douglas production function into linear form by using Double log
transformation technique ........................................................................................................... 8

6.1 Bangladesh ....................................................................................................................... 8

6.1.1 Model Estimation .................................................................................................... 10

6.2Vietnam ........................................................................................................................... 13

6.2.1 Model Estimation .................................................................................................... 16

7 .Comparative Analysis .......................................................................................................... 22

7.1 Coefficient Comparison ................................................................................................. 22

7.2 Return to scale Comparison ........................................................................................... 22

7.3 Comparative interpretation of R-Square ........................................................................ 23

8 .Conclusion ........................................................................................................................... 24

9 .References ............................................................................................................................ 25

2|Page
1. Abstract
The objectives of this report is to explore the relationship between dependent
variable GDP and independent variable labour and capital of Bangladesh and
Vietnam on the basis of Cobb Douglas production to compare economic
performance between Bangladesh and Vietnam.This paper choose and estimate
the parameters of Cobb-Douglas function with Bangladesh and vietnam over
the period 1980 to 2016, which should be helpful in suggesting the most
suitable Cobb-Douglas production function to forecast the production process
for selected countries like Bangladesh Vietnam. This paper also investigates
the efficiency of both capital and labor elasticity of the two mentioned form of
Cobb-Douglas production function. The estimated results shows that the
estimates of both capital and labor elasticity of Cobb-Douglas production
function of Vietnam are efficient than those estimates of Cobb-Douglas
production function of Bangladesh. In this report we use double log model to
transform nonlinear function into a linear function and then ordinary least
square method is applied to estimate the model by using Eviews.Breusch-
Godfrey LM test has been applied to test whether there is autocorrelation
problem or not. To remove autocorrelation problem we use first difference
approach. Finally this report will present a comparative analysis of economic
performance between Bangladesh and Vietnam.

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2. Introduction
In the present times, production takes place by the combination forces of
various factors of production such as land, labor, capital etc. In this connection,
socialist countries are using different patterns of level of factors of production
for their respective industrialization policy according to the taste, demand and
nature of their country-wide population, its size, location and environment.
Bangladesh is a developing country. It is essential for Bangladesh to go for
mass industrialization to strengthen the economy of Bangladesh for this
purpose; of course our policy for industrialization must be well planned, well
defined and well thoughtful. It is obvious that the development of economy is
solely dependent on the industrial polices of the country. By using production
function we can get industrial policies especially indication about the nature of
the production inputs used in the production function. The growth of a country
can be measured by Gross Domestic Product (GDP). GDP is substantially
affected by the industrial output. Industrial gross output is a function of capital
and labor input mainly. If the effect of In increasing national welfare
importance of productivity is unavoidable. Both in developed and developing
countries it is recognized that productivity is the main source of economic
growth. Productivity increase the standards of living by ensuring fundamental
life sustaining needs. In this report we use three variables namely GDP, Labour
and capital where GDP is used as output whereas labour and capital are used as
input. Primary focus of this report is to determine the effect of input variable
labour and capital on the output variable GDP. In this report GDP data at
current US$ is used as dependent variable, Gross Fixed Capital formation at
current US$ is used as independent variable and total labour force is used as
second independent variable. Economic performance is measured by output
elasticity with respect to input and return to scale analysis.

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3. Methodology for collecting Data

Appropriateness and availability of data are two important issues for any study.
Success of any study mostly depends on appropriateness and availability of the
required data. In Bangladesh reliable data is very rare for any study. Missing
data can hamper the progress of the study while manipulated or rounded data
can mislead the interpretation of the findings. We use secondary source of data
collection to collect our necessary data for completing the study. To ensure
reliability, we use data bank of World Bank development indicatoras our data
source. A time series data is collected from World Bank development indicators
for previous thirty seven years (1980-2016).

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4. Econometric Methodology
In this report, least square method is applied to estimate the model. As we know
least square method is only applicable in linear regression model so that we
have converted nonlinear Cobb Douglas production function into linear function
by using double log transformation. We use Eviews to estimate our transformed
linear model by using least square method. To check autocorrelation problem
Breusch-Godfrey LM test is used. First difference approach is taken to remove
autocorrelation problem.

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5. Model Specification
In the field of Economics and Management one of the most widely used
production function is Cobb-Douglas production function is. This model fulfil
all the basic laws of economics. In this model Computation and interpretation of
parameters are very easy. By using this model we can easily estimate the
marginal product of labour and capital, returns to scale and input coefficients. In
case of empirical study this model has a wide application. Let us consider
following non-linear Cobb-Douglas production function:

Pt=A0 Lt 1 Kt2

Where, P = level of output (GDP at current US$), L = quantity of input variable
labour (Labour force, total), K = quantity of input variable capital (Gross fixed
capital formation at current US$) and 0 is constant, 1 and2 are two
parameters. 1 is called the output elasticity with respect to input labour, 2 is
called the output elasticity with respect to with respect to input capital. If
1 + 2 = 1, the function is said to be constant return to scale, if 1 + 2 <

1, the function is said to be decreasing return to scale and if 1 + 2 > 1, the

function is said to be increasing return to scale.

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6. Transforming Cobb-Douglas production function into linear form by
using Double log transformation technique
A model is said to be double log model if both the dependent and independent variables
appear in logarithmic form. We have to transform the non-linear equation into a linear form
using logarithmic technique. Taking logarithms in both sides of the equation (1) we have,

ln = ln + 1 ln + 2 ln +
This model is known as double log transformation.
Here, Pt = GDP at t period,
Lt = Labor force at t period,
Kt = Capital at t period,
t = Residual at t period.

This model is a three variable linear equation and we can apply the OLS method to
estimate0 , 1and2 .
To transform data in logarithmic form we use Eviews. Transformed data is tabled below:

6.1 Bangladesh

Year GDPB LFB GFCB Y X1 X2

1980 1.81E+10 36252010 2.62E+09 23.62128 17.40601 21.68607
1981 2.02E+10 37288660 3.47E+09 23.73141 17.43420 21.96857
1982 1.85E+10 38421810 3.22E+09 23.64241 17.46414 21.89160
1983 1.76E+10 39550780 2.92E+09 23.59168 17.49310 21.79366
1984 1.89E+10 40784040 3.12E+09 23.66353 17.52380 21.86077
1985 2.23E+10 42071630 3.53E+09 23.82688 17.55488 21.98368
1986 2.18E+10 43414540 3.52E+09 23.80398 17.58630 21.98237
1987 2.43E+10 44814310 3.76E+09 23.91366 17.61804 22.04762
1988 2.66E+10 46274230 4.18E+09 24.00339 17.65010 22.15417
1989 2.88E+10 47861960 4.64E+09 24.08301 17.68383 22.25795
1980 3.16E+10 46324086 5.20E+09 24.17637 17.65117 22.37205
1991 3.10E+10 47670098 5.23E+09 24.15588 17.67981 22.37778
1992 3.17E+10 48627614 5.49E+09 24.17986 17.69970 22.42569
1993 3.32E+10 49591818 5.95E+09 24.22481 17.71934 22.50705
1994 3.38E+10 50560696 6.21E+09 24.24280 17.73869 22.55012
1995 3.79E+10 51535733 7.25E+09 24.35927 17.75779 22.70482
1996 4.64E+10 52475220 9.63E+09 24.56139 17.77585 22.98780
1997 4.82E+10 53920002 1.05E+10 24.59954 17.80301 23.07703
1998 5.00E+10 55387808 1.11E+10 24.63498 17.82987 23.12636
1999 5.13E+10 56871710 1.16E+10 24.66038 17.85631 23.17852

8|Page
 2000 5.34E+10 58363260 1.27E+10 24.70051 17.88220 23.26539
2001 5.40E+10 59273460 1.31E+10 24.71209 17.89767 23.29221
2002 5.47E+10 60165403 1.33E+10 24.72557 17.91261 23.31258
2003 6.02E+10 61013076 1.48E+10 24.82026 17.92660 23.42105
2004 6.51E+10 61785608 1.63E+10 24.89932 17.93918 23.51270
2005 6.94E+10 62471582 1.79E+10 24.96377 17.95022 23.61015
2006 7.18E+10 62943612 1.88E+10 24.99742 17.95775 23.65587
2007 7.96E+10 63342123 2.08E+10 25.10043 17.96406 23.76020
2008 9.16E+10 63688571 2.40E+10 25.24104 17.96952 23.90171
2009 1.02E+11 64016262 2.69E+10 25.35291 17.97465 24.01373
2010 1.15E+11 64352482 3.03E+10 25.47062 17.97989 24.13299
2011 1.29E+11 65536644 3.53E+10 25.58027 17.99812 24.28641
2012 1.33E+11 66746410 3.77E+10 25.61629 18.01641 24.35265
2013 1.50E+11 67995984 4.26E+10 25.73384 18.03496 24.47469
2014 1.73E+11 69307791 4.94E+10 25.87590 18.05407 24.62336
2015 1.95E+11 70709722 5.64E+10 25.99667 18.07409 24.75488
2016 2.21E+11 72075901 6.57E+10 26.12331 18.09323 24.90768

Graphical Presentation:

2.4E+11

2.0E+11

1.6E+11

1.2E+11

8.0E+10

4.0E+10

0.0E+00
1980 1985 1990 1995 2000 2005 2010 2015

GDP BD LF BD GFC BD

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6.1.1 Model Estimation
To estimate the Cobb-Douglas production function for Bangladesh we provide command in
the command section of eviews software. Following result has been estimated by eviews:

Estimation Command:
=========================
LS Y C X1 X2

Estimation Equation:
=========================
Y = C (1) + C (2)*X1 + C (3)*X2

Substituted Coefficients:
=========================
Y = 10.4877509217 - 0.269716350674*X1 + 0.820829027434*X2

Dependent Variable: Y
Method: Least Squares
Date: 10/18/17 Time: 18:02
Sample: 1980 2016
Included observations: 37

Variable Coefficient Std. Error t-Statistic Prob.

C 10.48775 2.443078 4.292843 0.0001

X1 -0.269716 0.184608 -1.461022 0.1532
X2 0.820829 0.038336 21.41142 0.0000

R-squared 0.994149 Mean dependent var 24.63748

Adjusted R-squared 0.993805 S.D. dependent var 0.732462
S.E. of regression 0.057650 Akaike info criterion -2.791239
Sum squared resid 0.113001 Schwarz criterion -2.660624
Log likelihood 54.63792 Hannan-Quinn criter. -2.745191
F-statistic 2888.627 Durbin-Watson stat 0.283470
Prob(F-statistic) 0.000000

In this estimated result it is found that, efficiency parameter or regression constant C (0 ) is

10.48775 and regression coefficients 1 and2 are -.269716 and .820829 respectively.
But we cannot accept the estimated result before checking the autocorrelation problem. To
check autocorrelation problem we run eviews again for testing autocorrelation. Our null
hypothesis is there is no autocorrelation in the residual against the alternative hypothesis
there is autocorrelation in the residual. Autocorrelation test result is given below:

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 89.51397 Prob. F(1,33) 0.0000

Obs*R-squared 27.03379 Prob. Chi-Square(1) 0.0000

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Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 10/18/17 Time: 18:03
Sample: 1980 2016
Included observations: 37
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C -0.789824 1.289721 -0.612399 0.5445

X1 0.056173 0.097433 0.576531 0.5682
X2 -0.009023 0.020218 -0.446274 0.6583
RESID(-1) 0.877335 0.092730 9.461182 0.0000

R-squared 0.730643 Mean dependent var -6.77E-16

Adjusted R-squared 0.706156 S.D. dependent var 0.056026
S.E. of regression 0.030370 Akaike info criterion -4.048902
Sum squared resid 0.030438 Schwarz criterion -3.874749
Log likelihood 78.90469 Hannan-Quinn criter. -3.987505
F-statistic 29.83799 Durbin-Watson stat 1.624191
Prob(F-statistic) 0.000000

In the estimated result probability value is 0 percent meaning that less than 5 percent. When
the probability value or p value is less than 5 percent then we can reject the null hypothesis
and can accept the alternative hypothesis meaning that our model has autocorrelation or serial
correlation. Now, we have to remove the serial correlation from the model. There are many
ways to remove serial correlation but we use first difference technique.First difference
equation:

Yt - Yt-1 = 1 (1 - 1 -1) +2 (2 - 2 -1) +( - -1)

To run above regression equation all one has to do is form the first difference of both the
regressand and regressor(s) and run the regression on these differences. An interesting feature
of the first difference model is that there is no intercept in it. Hence, to estimate above model
we have to use the regression through the origin routine (that is, suppress the intercept term).
In eviews we generate these first differences by giving following command in command
section. DY=D(Y), DX1=D(X1), DX2=D(X2).

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After running the first difference equationin eviews we have,

Estimation Command:
=========================
LS DY DX1 DX2

Estimation Equation:
=========================
DY = C (1)*DX1 + C (2)*DX2

Substituted Coefficients:
=========================
DY = 0.0563135794872*DX1 + 0.761970230803*DX2
Dependent Variable: DY
Method: Least Squares
Date: 10/18/17 Time: 18:04
Sample (adjusted): 1981 2016
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

DX1 0.056314 0.272998 0.206278 0.8378

DX2 0.761970 0.053155 14.33499 0.0000

R-squared 0.770278 Mean dependent var 0.069501

Adjusted R-squared 0.763521 S.D. dependent var 0.061985
S.E. of regression 0.030143 Akaike info criterion -4.111781
Sum squared resid 0.030892 Schwarz criterion -4.023807
Log likelihood 76.01205 Hannan-Quinn criter. -4.081076
Durbin-Watson stat 1.162137

In this estimated result it is found that, there is no intercept term (suppressed by first
difference) and regression coefficients 1 and2 are 0.056314 and .761970 respectively. But
we cannot accept the estimated result before checking the autocorrelation problem. To check
autocorrelation problem we run eviews again for testing autocorrelation. As before, our null
hypothesis is there is no autocorrelation in the residual against the alternative hypothesis
there is autocorrelation in the residual. Autocorrelation test result is given below:

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 2.416809 Prob. F(1,33) 0.1296

Obs*R-squared 2.232289 Prob. Chi-Square(1) 0.1352

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Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 10/18/17 Time: 18:05
Sample: 1981 2016
Included observations: 36
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

DX1 0.083853 0.272866 0.307303 0.7605

DX2 -0.031033 0.055775 -0.556389 0.5817
RESID(-1) 0.280418 0.180379 1.554609 0.1296

R-squared 0.062008 Mean dependent var 0.002388

Adjusted R-squared 0.005160 S.D. dependent var 0.029610
S.E. of regression 0.029534 Akaike info criterion -4.126904
Sum squared resid 0.028784 Schwarz criterion -3.994944
Log likelihood 77.28427 Hannan-Quinn criter. -4.080847
Durbin-Watson stat 1.768931

In the estimated
In the result
estimated probability value is 13.52% percent meaning that more than 5 percent.
result
When probability value isvalue
the probability 0 or p value is more than 5 percent then we can accept the null
percent meaning that less
hypothesis and can
than 5 percent. When reject
the the alternative hypothesis meaning that our model has no
probability value
autocorrelation or p value
or serial correlation.
is less than 5 percent then
Nowwe wecancanreject theour
accept nullmodel. Findings from the estimated result are tabled below:
hypothesis and can accept
the alternative
Regression hypothesis
Coefficients : Comment:
meaning that our model has
autocorrelation or serial Beta 1 indicates the output elasticity with respect to labour which is
correlation positive 5.6314% meaning that if labour input increase by 100%
1 =0.056314 remaining capital input constant then total output will be
increased by 5.6314%. On the other hand Beta 2 indicates output
elasticity with respect to capital is 76.1970% meaning that if
2 =.761970 capital input increase by 100% remaining labour input constant
1 + 2 =(0.056314+ then total output will be increased by 76.1970%.
.761970) = .818284 As, 1 + 2 < 1, the function shows decreasing return to scale.

From the estimated value of R-Square it can be said that 77.0278%

R- Squared = .770278 of the total variation in the dependent variable GDP is explained by
the fitted regression equation and remaining 22.9722% is
explained by the random factors. Thus the fit is good.

6.2Vietnam

Time GDP VN LF VN GFC VN y x1 x2

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1990 10471740491 32591331 1028638266 23.07195 17.29956 20.7515

1991 12613369548 33332320 1568638266 23.25802 17.32204 21.17347

1992 12866990092 34022709 2128638266 23.27793 17.34254 21.47875

1993 13180953966 34730353 2958638266 23.30204 17.36312 21.80799

1994 16286434068 35465417 3952242917 23.5136 17.38407 22.09755

1995 20736163924 36253803 5271373457 23.75515 17.40605 22.38556

1996 24657470353 37058064 6489586023 23.92835 17.428 22.59346

1997 26843701147 37989262 7166982305 24.0133 17.45281 22.69275

1998 27209601996 39047356 7352351266 24.02684 17.48029 22.71829

1999 28683657995 40147486 7372697843 24.07959 17.50807 22.72105

2000 33640085739 41140552 8618204509 24.23898 17.5325 22.87714

2001 35291349197 42268110 9527973895 24.2869 17.55954 22.9775

2002 37947904054 43259064 1.0918E+10 24.35948 17.58272 23.11372

2003 42717072869 44200523 1.3192E+10 24.47786 17.60425 23.3029

2004 49424107710 45177834 1.5107E+10 24.6237 17.62612 23.4384

2005 57633255618 46198299 1.8024E+10 24.77737 17.64845 23.61497

2006 66371664817 47099813 2.0817E+10 24.91854 17.66778 23.75903

2007 77414425532 48043678 2.7178E+10 25.07244 17.68762 24.02567

2008 99130304099 49030268 3.1529E+10 25.3197 17.70795 24.17416

2009 1.06015E+11 49972439 3.5894E+10 25.38684 17.72698 24.30382

2010 1.15932E+11 51022527 3.7845E+10 25.47627 17.74778 24.35676

2011 1.35539E+11 52002529 3.6348E+10 25.63253 17.7668 24.31641

2012 1.5582E+11 52955188 3.7706E+10 25.77197 17.78496 24.35308

2013 1.71222E+11 53858122 4.0484E+10 25.86623 17.80186 24.42418

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 2014 1.86205E+11 54533375 4.4375E+10 25.95011 17.81432 24.51595

2015 1.93241E+11 55258600 4.769E+10 25.9872 17.82753 24.58798

2016 2.02616E+11 55930177 4.7959E+10 26.03458 17.83961 24.59361

Graphical Representation:

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 2.4E+11

2.0E+11

1.6E+11

1.2E+11

8.0E+10

4.0E+10

0.0E+00
90 92 94 96 98 00 02 04 06 08 10 12 14 16

GDP VN LF VN GFC VN

6.2.1 Model Estimation

To estimate the Cobb-Douglas production function for Vietnam we provide command in the
command section of eviews software. Following result has been estimated by eviews:

Estimation Command:
=========================
LS Y C X1 X2

Estimation Equation:
=========================
Y = C (1) + C (2)*X1 + C (3)*X2

Substituted Coefficients:
=========================
Y = -65.94254 + 5.0717106*X1 + 0.057777*X2

Dependent Variable: Y

Method: Least Squares

Date: 10/20/17 Time: 15:28

Sample: 1990 2016

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 Included observations: 27

Variable Coefficient Std. Error t-Statistic Prob.

C 5.94254 1.859453 6.688256 0.0000

X1 1.571706 0.699610 7.249333 0.0000

X2 0.057777 0.107963 0.535161 0.5975

R-squared 0.984839 Mean dependent var 24.60768

Adjusted R-squared 0.983576 S.D. dependent var 0.945971

S.E. of regression 0.121233 Akaike info criterion -1.277760

Sum squared resid 0.352741 Schwarz criterion -1.133778

Log likelihood 20.24976 Hannan-Quinn criter. -1.234947

F-statistic 779.5079 Durbin-Watson stat 0.329705

Prob(F-statistic) 0.000000

In this estimated result it is found that, efficiency parameter or regression constant C (A0 ) is

65.94254 and regression coefficients 1 and2 are 5.071706and 0.057777 respectively. But
we cannot accept the estimated result before checking the autocorrelation problem. To check
autocorrelation problem we run eviews again for testing autocorrelation. Our null hypothesis
is there is no autocorrelation in the residual against the alternative hypothesis there is
autocorrelation in the residual.

Autocorrelation test result is given below:

Breusch-Godfrey Serial Correlation LM Test:

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 Breusch-Godfrey Serial Correlation LM Test:

F-statistic 49.59580 Prob. F(1,23) 0.0000

Obs*R-squared 18.44579 Prob. Chi-Square(1) 0.0000

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 10/20/17 Time: 15:29
Sample: 1990 2016
Included observations: 27
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C 0.359390 5.669180 0.063394 0.9500
X1 -0.032494 0.402286 -0.080773 0.9363
X2 0.009239 0.062090 0.148795 0.8830
RESID(-1) 0.835318 0.118612 7.042429 0.0000
R-squared 0.683177 Mean dependent var 2.72E-15
Adjusted R-squared 0.641853 S.D. dependent var 0.116477
S.E. of regression 0.069706 Akaike info criterion -2.353099
Sum squared resid 0.111756 Schwarz criterion -2.161123
Log likelihood 35.76683 Hannan-Quinn criter. -2.296014
F-statistic 16.53193 Durbin-Watson stat 1.252188
Prob(F-statistic) 0.000006

In the estimated result probability value is 0% percent meaning that less than 5 percent. When
the probability value or p value is less than 5 percent then we can reject the null hypothesis
and can accept the alternative hypothesis meaning that our model has autocorrelation or serial
correlation. . Now, we have to remove the serial correlation from the model. As before we
use first difference technique to remove serial correlation problem.

Yt - Yt-1 = 1 (1 - 1 -1) + 2 (2 - 2 -1) + ( - -1)

To run above regression equation all one has to do is form the first difference of both the
regressand and regressor(s) and run the regression on these differences. An interesting feature
of the first difference model is that there is no intercept in it. Hence, to estimate above model
we have to use the regression through the origin routine (that is, suppress the intercept term).
In eviews we generate these first differences by giving following command in command
section. DY=D(Y), DX1=D(X1), DX2=D(X2).

After running the first difference equation in eviews we have,

Estimation Command:
=========================
LS DY DX1 DX2

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 Estimation Equation:
=========================
DY = C (1)*DX1 + C (2)*DX2

Substituted Coefficients:
=========================
DY = 0.296595639067*DX1 + 0.701841853594*DX2

Dependent Variable: DY
Method: Least Squares
Date: 10/18/17 Time: 18:04
Sample (adjusted): 1981 2016
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

DX1 1.042724 1.026303 1.646802 0.0013

DX2 0.224354 0.117075 1.916330 0.0673

R-squared 0.760302 Mean dependent var 0.069501

Adjusted R-squared 0.761148 S.D. dependent var 0.061985
S.E. of regression 0.066760 Akaike info criterion -4.111781
Sum squared resid 0.106964 Schwarz criterion -4.023807
Log likelihood 34.52127 Hannan-Quinn criter. -4.081076
Durbin-Watson stat 1.432256

In this estimated result it is found that, there is no intercept term (suppressed by first
difference) and regression coefficients 1 and 2 are 1.042724 and .224354 respectively.
But we cannot accept the estimated result before checking the autocorrelation problem. To
check autocorrelation problem we run eviews again for testing autocorrelation. As before, our
null hypothesis is there is no autocorrelation in the residual against the alternative hypothesis
there is autocorrelation in the residual. Autocorrelation test result is given below:

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 Breusch-Godfrey Serial Correlation LM Test:

F-statistic 2.017041 Prob. F(1,23) 0.1690

Obs*R-squared 2.042051 Prob. Chi-Square(1) 0.1530

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 10/20/17 Time: 15:21
Sample: 2 27
Included observations: 26
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

DX1 -0.058284 1.006062 -0.057933 0.9543
DX2 0.007773 0.114801 0.067711 0.9466
RESID(-1) 0.284276 0.200162 1.420226 0.1690
R-squared 0.078540 Mean dependent var 0.003052
Adjusted R-squared -0.001587 S.D. dependent var 0.065337
S.E. of regression 0.065388 Akaike info criterion -2.508776
Sum squared resid 0.098340 Schwarz criterion -2.363611
Log likelihood 35.61409 Hannan-Quinn criter. -2.466974
Durbin-Watson stat 1.828310

In the estimated result probability value is 15.30% percent meaning that more than 5 percent.
When the probability value or p value is more than 5 percent then we can accept the null
hypothesis and can reject the alternative hypothesis meaning that our model has no
autocorrelation or serial correlation. Now we can accept our model

Findings from the estimated result are tabled below:

Regression Coefficients: Comment:

Beta 1 indicates the output elasticity with respect to labour which is
1.04274 meaning that if labour input increase by 100%
1 =1.042724 remaining capital input constant then total output will be increased
by 104.4247%. On the other hand Beta 2 indicates output
2 =.224354 elasticity with respect to capital is 0.224354 meaning that if
1 + 2 = capital input increase by 100% remaining labour input constant
(1.042724+.224354 ) = then total output will be increased by 22.4354%.
1.267078 As 1 + 2 > 1, the function shows incresing return to scale.

From the estimated value of R-Square it can be said that 76.83%

R- Squared = .760302 of the total variation in the dependent variable GDP is explained by
the fitted regression equation and remaining 23.87% is explained
by the random factors. Thus the fit is not so good

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7. Comparative Analysis
7.1 Coefficient Comparison
Country Beta 1 Beta 2

0.056314 .761970
Output elasticity with respect to Output elasticity with respect to
Bangladesh labour is positive which is capital is positive which is
5.6314%. 76.19%.

1.042424 .224354
Output elasticity with respect to
Vietnam Output elasticity with respect to capital is positive which is
labour is positive which is 22.4354%.
104.247%.

Comparatively Better Vietnam Bangladesh

7.2 Return to scale Comparison

Country +

Bangladesh (0.056314+ .761970) = .808284

1 + 2 < 1, Decreasing return to scale.

Vietnam (1.042724+.224354 ) =1.267078

1 + 2 > 1, Increasing return to scale
Comparatively Better Vietnam is performing comparatively better than Bangladesh

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7.3 Comparative interpretation of R-Square
Country -Square

Bangladesh .770278
Model fit is good because only 22.9722% of the total variation in
dependent variable is explained by error term.
Vietnam .760302
Model fit is good because only 23.97% of the total variation in
dependent variable is explained by error term.
Better fit For Bangladesh Data

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8. Conclusion
The main objective of this report is to find out the impact of labour force and capital on the
GDP for two selected countries namely Bangladesh and Vietnam. Return to scale is also
measured in this report. Output elasticity of labour is negative for Bangladesh because of
unskilled, little or uneducated, and quality less labour force whereas this elasticity is positive
for Vietnam.. Output elasticity of capital is not same for both the country which is ranged
between 70 to 126% so that, there is a scope for development for Bagladesh To become
sustainable in this prosperous world economy both countries should make heavy investment
on health, education and training for creating quality labour force. Performance of invested
capital must be utilised by focusing on the quality of the investment.

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9. References
o https://knoema.com/atlas/Viet-Nam/GDP
o https://data.worldbank.org/indicator/NE.GDI.FTOT.CD
o https://data.worldbank.org/indicator/SL.TLF.TOTL.IN
o https://www.arcgis.com/home/webmap/viewer.html?webmap=a2459fc41be740f2b4b
e70e4a7d4f46e
o Bangladesh Bureau of Statistics. Statistical Yearbook of Bangladesh, Ministry of
Planning, Government of Bangladesh, Dhaka..
o Wooldridge. (2006). Basic econometrics: South-Western College.
o Gujarati, D. and Porter, D. (2017). Basic econometrics: McGraw-Hill/Irwin.
o Md Sharif Hossain (2015). Statistics for business, management and economics.

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