Modeling of Production Function with Application to Crude Oil Producing Sector in Nigeria
Maxwell, Awoingo Adonijah
Department of Mathematics
Faculty of Science
Rivers State University, Port Harcourt
Email: maxwellawoingo@yahoo.com
ABSTRACT
This study focuses on modeling of production function with application to crude oil producing sector in Nigeria. The Cobb-Douglas Production function with multiplicative error term is considered in this study. The objectives of the study are to estimate parameters of Cobb-Douglas production functions and examine measures of Returns to Scale of the Cobb-Douglas production function in the crude oil producing sector in Nigeria. The data for the study are crude oil production in Nigeria from 1998-2017, and are collected from the World Bank (World Development Indicator). The methods of ordinary least square (OLS) are used in the estimation of the production function. The study finds that coefficients for capital (K) and Labour (L) are – 0.0573 and 0.4656 respectively for the entire crude oil producing sector and the coefficients for capital is relatively low. The adjusted R2implies that the model is able to explain only 29.2 percent of the total variation in the crude oil production. The findings also reveal that the sector exhibits decreasing returns to scale. This study suggests that increases in capital and labour employment will boost the production of crude oil in Nigeria.
Keywords: Cobb-Douglas Production function, Return to Scale, Crude oil, capital, labour.
