Analysing Cobb Douglass Function Use In Romanian Agriculture Essay

In footings of Romania ‘s integrating in the EU economic infinite, agribusiness, in its kernel is a beginning of recovery and realisation of economic potency. This paper proposes an analysis of the usage of labour and capital resources in the development of Rumanian agricultural production in footings of obtaining GVA and its viability in the competitory environment of the Community. Besides, based on Cobb-Douglass production map, an analysis of the influence of both classical production factors – labour and capital every bit good as their deductions on the Rumanian agricultural production is being made

Introduction

Agribusiness, through its function and economic importance which addition in Romania ‘s economic system, is an indispensable and specifying component in continuing the national particular and capitalising the economic and human potency in footings of increased efficiency. Beyond the issues related to production and the efficiency to acquire it, the specificity of this economic subdivision lies in how to unite the production factors. Thus the rational development of land and fixed capital in this sector, to which labour is added, capitalized in the round active procedure, makes the concluding production to go a characteristic of the national cultural theoretical account. In this context, the agricultural production must be analyzed and perceived, in its specificity, without being compared to industrial merchandises, where the capital used involves an issue largely related to costs.

The alterations produced for the entire factor productiveness or for the output-production factors index ratio is one of the most of import beginnings for economic growing generated for each province and economic system. ( Aragon, 2007 )

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The orientation toward multifunctional agribusiness can be a solution to increase efficiency in this sector merely by optimising the production from the economically point of position, utilizing specific techniques and methods for planning and directing the production. Using production maps, including the Cobb-Douglas, can supply of import extra informations to accomplish this aim.

Using the production map in the agricultural field represents an attack whose consequences complement the surveies on the impact of employment and capital in this important sector in the Rumanian economic system. Numerous surveies made, such as that of Hussain A.M and Saed A.J, ( 2001 ) in the instance of agribusiness in Jordan, show an addition of the snap capital / labour, in favour of capital and cut down the spread of production through intensive usage of labour. Echevarria C ( 1998 ) in his survey demonstrates that the additions obtained as an consequence of utilizing the three classical factors of production, labour, nature and capital in the instance of Canadian agribusiness, causes the snap to be established in favour of capital-intensive usage and non labour as in the instance of Rumanian agribusiness. She besides reaches the decision that the usage of production maps is a valuable tool for finding and bettering the economic growing. Harmonizing to the same survey, Canadian agribusiness is less manually-intensive and more capital-intensive. Hagendorf ( 2009 ) shows that in the modern-day economic theory the income distribution within an economic system relies largely, if non ever on the map of production, including income redistribution process.

Zaman and Goschin ( 2007 ) in their demarche to find the snap of the production factors in the Rumanian economic system conclude that the snap of the production factors varies depending on the clip period taken into history in doing the computations and besides on the type of the economic system analysed, stressing the stabilization inclination at the aggregative degree when it comes to long periods of analysis

Ionita and Blidaru ( 1999 ) analyze the chief function that investings have in agribusiness to update the production capacities making the decision that accomplishing the Rumanian agricultural potency can be made merely under high public presentation conditions in runing the capital engaged in this sector. A subsequent survey by the same writer ( 2008 ) pull attending to the economic deductions of Community Agricultural Policy on the possibility of working the agricultural potency through national immobilized capital update in agribusiness and optimum allotment of labour resources.

The structural alterations in Rumanian agribusiness during 1990-2007 were dramatic. We are witnessing a PGB growing in footings of para of the buying power ( PPP ) , from 857.9 million wreath in 1990 to 412,761.5 million wreath in 2007, but besides for agribusiness GDP. In table no.1 is described the comparative importance and the portion of the economic sectors in Romania for the period 1990-2007, in PPP footings.

As seen GDP in Agriculture has increased significantly over the period analyzed. If in 1990 it was merely 187.2 million wreath, ten old ages subsequently he recorded a growing rate of 21.04 % amounting to 88985.3 million wreath. This tendency inverting nevertheless for the period 2000-2007, when it recorded a diminution of 26.36 % . Therefore for the full period we see an incensement in absolute size of 23267.6 million wreath.

The comparative importance of agribusiness in 1990 was therefore of 21.82 % , industry of 40.52 % , building merely 5.36 % and merchandise 4.86 % . As it can be seen after 17 old ages of reform and economic passage, the importance of agribusiness decreases dramatically about four times, making in 2007 to stand for a significantly reduced importance ( merely ) 5.68 % . Industry continues to hold the greatest relevancy to the economic system of 23.90 % , although it decreases by 50 % compared to 1990, while trade and building reached in 2007 to hold the same portion of relevancy of 11.21 % .

Reducing the importance of agribusiness in national economic system has multiple causes among which we mention ( belongings crumbling, outdated engineering and technique, proficient capital depreciation, an aging work force ) ( Popescu, 2007 ) . As you can see about all the economic sectors recorded a lessening in importance in the Rumanian economic system, on the background of a “ ageless reform ” that led to under-utilization of production capacity or to take them for good from the productive circuit.

If we consider the in-put factors in agribusiness we can see that, over the period although they have changed in construction and size, the consequence – severally the agricultural production expressed as a value has recorded a growing comparatively relative to the sum of mobilising factor in accomplishing this production, we do non see a monolithic betterment of the state of affairs in utilizing the production capital to its existent possible, as shown in table 2.

If we consider the work force employed in agribusiness over, 1990-2007 we may happen that it significantly reduced. If in 1990 in agribusiness were working 655 000 people, in 2007 were working merely 125,000 people, severally, 5.24 times less than in the first twelvemonth of passage to market economic system. In the instance of the capital used in this industry we see a significantly incensement in 2007 compared to 1990 severally 4.36 times. In the instance of the land used in agricultural production ( the production factor nature, non included as a factor in the Cobb-Douglass equation but of great importance in analysing the agricultural sector in Romania ) we see a diminution in the last two old ages of the period analyzed ( 2006, 2007 ) compared to 1990 of about 0.82 times. In these conditions utilizing classical production factors labour, land and capital in the Rumanian agribusiness demand to circumscribe to the procedure of efficiency growing in working the true potency of these factors.

MATERIALS AND METHODS

In doing the Cobb-Douglas map, used for agribusiness in our instance, we used the informations provided in the Statistical Yearbook of Romania for the period 1999-2009, The Statistical Breviary for 2008 and 2009, operative informations of MAPDR every bit good as the on-line database of EUROSTAT and Statistical Year Book for 2009.

However, in our analysis attack, to use a production map Cobb-Douglas type for the Rumanian agricultural sector, due to the diverseness of informations beginnings that we used in the building of the map, and the methodological analysis used in obtaining them by the competent governments we found certain restrictions imposed chiefly due to the computation methodological analysiss used in aggregating the information.

In the databases searched / researched to roll up the needed informations for ciphering the Cobb-Douglass map we found that for the same phenomenon measured the related records differ from one disposal to another. This disparity is due to our deficiency of an unitary methodological model for mensurating and coverage and the alteration of computation methodological analysiss. For illustration, in the instance of GDPagriculture during 1990-1998 ESA 1979 methodological analysis was used and get downing with 1999 ESA 1995 methodological analysis is used by the National Institute of Statistics. In add-on, we know that the informations used, necessarily contain mistakes of measuring due to the complex procedure of aggregation and measuring and because the authorization that measures and aggregates them at cardinal degree.

Given the Cobb-Douglass map constituents, for the capital factor ( K ) we have used informations that were included in the chapter sing touchable assets severally gross capital formation in agribusiness, for labour ( L ) the figure of employees in agribusiness was taken into history and the parametric quantity A is represented by the value of GDP related to agricultural subdivision. The information series is for the period 1990-2007, the value looks for GDP agribusiness and K are expressed in 1000000s of wreath at buying power para and labour is expressed in million of workers employed in this economic sector.

In our analysis, we have assumed the general signifier of Cobb-Douglass production map:

( 1 )

Where:

Yt = agricultural production in footings of value for twelvemonth T

Kt = immobilized fixed capital in agribusiness for twelvemonth T

Lt = work force employed in agribusiness in twelvemonth T ;

T = clip

We besides mention that A, I± , I? , shows the overall significance related to the map, viz. aˆzA ” is the size factor reflecting overall productiveness of production factors, aˆzI± ” the snap of agricultural end product relation to the capital used in agricultural field at national degree aˆzI? ” snap of agricultural end product in relation to work in the agricultural sector.

The factors that influence the productiveness degree in agribusiness are different and with different impact on the result. Mobilizing the classical production factors – work, nature and capital in the complex production procedure in order to obtain higher returns is the organisational signifier, which can go a factor in the expanded initial map Cobb-Douglass. A survey made in 2007 in the southern portion of Italy ( Di Falco, 2007 ) proves the function of agricultural co-ops in raising income, viz. GVA in agribusiness, and depicting a production map ( Yt ) like the one analyzed in this paper, from the generalised signifier of ( 1 )

where I±i & gt ; 0 ( 2 )

RESULTS AND DISCUSSION

Labor and capital, in the instance of the Rumanian agribusiness, must be examined in the complex expression that objectively determines the competitiveness grade of this sector and to reconsider these elements in increasing the economic efficiency. As it is known Rumanian agribusiness mobilizes important labour resources, which are non ever found in official statistics. The grade of proficient equipment is non at a corresponding degree which requires more than of all time doing new investings in engineering and agricultural engineering. Using LEAST SQUARES method we determined the Coefficient, Std.Error, t-Statistics and Prob. For the two labour variables ( L ) and capital ( K ) used in composing the Cobb-Douglass map.

In table no.4, the values for the 3 variables are presented C, L, K in the instance of LEAST SQUARES method White Heteroskedasticy – Consistent Standard Errors and Covariance

Get downing from the general signifier of Cobb-Douglass map ( 1.2 ) through logarithm was achieved the appraisal of the map that has a specific signifier shown below:

( 3 )

Estimation Equation for ( 3 ) being:

Log ( PIB ) =C ( 1 ) +C ( 2 ) *Log ( L ) +C ( 3 ) *Log ( K ) +C ( 4 ) * ( Log ( L ) 2 ) +C ( 5 ) * ( Log ( K ) 2 ) +

C ( 6 ) * ( Log ( L ) *Log ( K ) ) ( 4 )

Traveling frontward we determined the substituted coefficients for the map described above, such:

Log ( PIB ) =343.8557505+96.71225912*Log ( L ) +20.16435295*Log ( K ) – 7.091561253* ( Log ( L ) 2 ) -0.4502814435* ( Log ( K ) 2 ) -2.156995175* ( Log ( L ) *Log ( K ) ) ( 5 )

From the analysis, R squared = 0,928614 indicates the fact that the two factors ( L and K ) have an influence of 92, 86 % in GDP. Since the value of R = 0.96364 indicates a strong nexus between the endogenous variable GDP and the explanatory variables L labour, K capital. Following to prove the cogency of the arrested development theoretical account, we used the F-test of scattering analysis.

F-statistic = Fisher trial calculated is being compared to F critic ( tabular array )

( 6 )

Therefore, F-statistic ( 31,21981 ) iˆ? F tabular array, consequences that the theoretical account is valid. Besides the cogency of the theoretical account is confirmed and the value of P ( F-statistic ) = 0.00002 is less than 0.05

Next we compared the Durbin Watson statistic with the critical values of the statistics and the undermentioned determination countries consequence:

0 & lt ; DW & lt ; d1A : the mistakes are positively autocorelated ;

d1 & lt ; DW & lt ; d2A : we can non state if the mistakes are positively corelated ;

d2 & lt ; DW & lt ; 4-d2A : mistakes are non autocorelated ;

4-d2 & lt ; DW & lt ; 4-d1: one can non state if the mistakes are negatively corelated ;

4-d1 & lt ; DW & lt ; 4A : the mistakes are negatively autocorelated.

Using the Durbin-Watson statistics suggest the presence of mistakes ‘ autocorrelation, after comparing it with the two theoretical dimensions d1 and d2 chosen based on I± = 0.05, k = 2 exogenic variables, and n = 18 of observations i?z d1=1,05 and d2 = 1.53. So: 4-d2 = 2.47iˆ? 2.502668iˆ?4-d1=2,95 i?z one can non state whether the mistakes are negatively correlated – so the trial is non enlightening in this instance.

Harmonizing to some analysis ( Zaman et all 2007 ) in Romania ‘s instance, the following values have resulted for the parametric quantities, , and A = 1.020, provided that I± + I? & lt ; 1 and I± , I? & gt ; 0. We besides saw that the influence of the work factor on the production of GDP is much higher than in the instance of capital. We therefore conclude that the national economic system is one more labour-intensive and less based on the usage of capital in the production procedure. In another survey ( Vesa, 2008 ) it is shown that in the instance of agribusiness A = 101.99 a‰? 98 and I± = 0.235, I? = 0.456, depicting a reduced efficiency in the usage of human resources and capital factors, the writer demonstrates a correlativity of 75.26 % between the value of agricultural production and labour factor and immobilisation of capital. Relatively analysing the consequences obtained in utilizing the two methods of calculating described by the theoretical accounts above, we can state the undermentioned. To acquire relevant consequences and closer to the world described we should choose for the first theoretical account where the grade of finding was raised and the premises were met. The 2nd theoretical account in our instance staying the lone option. The arrested development theoretical account may besides better, both quantitative and qualitative, and in the future research we will present new and multiple variable hoping to acquire a comprehensive image of the state of affairs described and of the sphere analyzed.

Decision

Agriculture through its strategic importance in the Rumanian economic system manages to mobilise of import labour resources. The deductions it generates on the societal environment are every bit high, Rumanian husbandmans are represented largely by them and their households. The incensement in gross coevals capacity of agribusiness should be a major aim in fabricating strategic determinations. Current development of economic system requires alterations for all subdivisions and economic sectors, in order to obtain maximal efficiency. Achieving this nonsubjective requires the mobilisation of important fiscal and material resources to those countries resistant to alter. Agribusiness over the old ages by developing a specific production theoretical account barely adapts to these alterations, put on the lining to go from the original agricultural theoretical account, including the European one, heading toward monolithic industrialisation, exactly to get by with the standards of economic efficiency. A growing is hence imposed in utilizing the productive capital in this sector in footings of reallocation of labour resources over used.

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