The estimation of the Cobb- Douglas production functions for the South African agricultural sector and a selection of its subsectors.
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Date
2015
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University of Zululand
Abstract
The main focus of this study is to apply a Cobb-Douglas production function to estimate agricultural production functions at both the aggregate and sub-sectorial levels in order to determine the productivity of land, labour and capital, while maintaining rainfall levels as a control variable for the South African economy over the period from 1975 to 2012. This task will be accomplished by applying cointegration techniques, Johansen’s (1988) vector auto regression (VAR) methodologies and error correction mechanisms to capture short run disequilibrium between agricultural production function and its determinants. Specifically the main objective of this study is to derive plausible estimates of the marginal productivities of land, labour and capital. Moreover this study will attempt to establish the nature of the long and short run relationships between land, labour and capital in the aggregate sector and the maize and wheat subsectors. However before the empirical analysis is conducted the study will first attempt to explain the relevant theories of growth and, which will then serve as a basis for examining South African growth experiences and policy prescription more specifically in the agricultural sector, for the purposes of understanding the South African agricultural sector growth phenomenon and choosing appropriate determinates of agricultural production growth. The findings of the VECM, FMOLS, CCR and DOLS methods strongly suggest that the marginal productivities of capital and land were positive while that of labour was negative; all the coefficients were statistically significant except for capital. Additionally the marginal productivity of land exceeded unity , thus implying that land productivity exhibits increasing returns to scale which confirms the trends that the number of farms have been decreasing but their land acreage have been increasing. While the negative marginal productivity of labour suggests that the South African aggregate agricultural sector is overwhelmed by severe diminishing marginal returns to labour, which explains the observed persistent decline in employment in the agricultural sector over the past three decades or more.
Description
A thesis submitted to the Faculty of Commerce, Administration and Law in fulfillment of the requirements for the Degree of Masters in Commerce (M Com) in the Department of Economics at the University Of Zululand, 2015
Keywords
Cobb-Douglas --production --agriculture