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

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.