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An Optimization Procedure for Estimating the Stock of Capital: Application to Ten Production Sectors of Dubai

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  • Belaid RETTAB
  • Ton KWAAK
  • Azzeddine AZZAM

Abstract

This paper develops and optimization procedure for estimating the capital stock using time series data on GDP, labor, and gross fixed capital formation. By minimizing the gap between observed and attainable GDP, subject to the constraint that capital grows according to the perpetual inventory formula, and GDP is related to employment and the capital stock through the Cobb-Douglas production function with constant returns to scale; the optimization procedure yields estimates of the capital stock, the production function parameters, the rate of capital retirement and depreciation, and the rate of total productivity growth.

Suggested Citation

  • Belaid RETTAB & Ton KWAAK & Azzeddine AZZAM, 2010. "An Optimization Procedure for Estimating the Stock of Capital: Application to Ten Production Sectors of Dubai," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 10(1).
    • Handle: RePEc:eaa:eerese:v:10:y2010:i:10_8
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    References listed on IDEAS

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    3. Charles Adams & David T. Coe, 1990. "A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 232-293, June.
    4. Cynthia Bansak & Norman Morin & Martha Starr, 2007. "Technology, Capital Spending, And Capacity Utilization," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 631-645, July.
    5. J. D. Lock, 1985. "Measuring The Value Of The Capital Stock By Direct Observation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(2), pages 127-138, June.
    6. José Hernández & Ignacio Mauleón, 2005. "Econometric estimation of a variable rate of depreciation of the capital stock," Empirical Economics, Springer, vol. 30(3), pages 575-595, October.
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    Cited by:

    1. Gorbunov, Vladimir & Lvov, Alexander, 2021. "Анализ Малого И Среднего Предпринимательства: Построение Производственных Функций С Оценкой Эффективных Фондов [Analysis of small and medium business: The constructing production functions with est," MPRA Paper 109157, University Library of Munich, Germany, revised 14 Jul 2021.

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