Cobb-Douglas Production Function: The Case of a Converging Economy

The Cobb-Douglas production function is often used to analyse the supply-side perfor-mance and measurement of a country’s productive potential. This functional form, how-ever, includes the assumption of a constant share of labor in output, which may be too restrictive for a converging country. For example, labor share in the Czech Republic gra-dually increased over the last decade. In this paper, we test whether this fact renders the ap-plication of the Cobb-Douglas production function unreliable for the Czech economy. We apply a more general form of production function and allow labor share to develop ac-cording to the empirical data. For the period 1995–2005, we do not find significant dif-ference between the calculation of the supply side of the Czech economy by the Cobb--Douglas production function and a more general production function. 1