Estimation of Production Function for Furniture and Pharmaceutical Industries in Nepal

Abstract

With the application of Robust Regression Method, this paper attempts to estimate the production function for manufacturing industries of Nepal. In this endeavour, the production function for Furniture and Pharmaceutical industries have been estimated using cross-section data of the Census of Manufacturing Establishment (CME) 2011/2012. The coefficients of log-linear form of Cobb-Douglas (C-D) production function reveal that the selected manufacturing industries are operating with decreasing returns to scales. The labour coefficients of both industries are found to be statistically insignificant. Negative labour coefficient of Pharmaceutical Industry indicates capital intensive nature of the production and minimal contribution of labour inputs. Although positive and significant, capital coefficients indicate both industries were running with decreasing returns to capital inputs. Total Factor Productivity (TFP) representing the state of technology and factors other than labour and capital found to be instrumental and significant for both the industries.