Use of Cobb‐Douglas production model on some selected manufacturing industries in Oman

Purpose – The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman. Design/methodology/approach – This empirical paper looks into an analytical justification to use Cobb‐Douglas (C‐D) production model in order to estimate and test the coefficients of the production inputs for each of the selected manufacturing industries using annual industrial statistical data over the period 1994 through 2007 published by Ministry of Commerce and Industry, Sultanate of Oman. Findings – The results of the paper indicate that for most of the selected industries the C‐D function fits the data very well in terms of labor and capital elasticity, return to scale measurements, standard errors, economy of the industries, high value of R 2 and reasonably good Durbin‐Watson statistics. The estimated results suggest that the manufacturing industries of Oman generally seem to indicate the case of increasing return to scale. Of the nine industries, seven exhibit increasing return to scale and only the rest two show decreasing return to scale. The paper finds no industry with constant return to scale. Research limitations/implications – The paper could not consider a good number of manufacturing industries and a long period of time series data in the study because of lack of data availability. Practical implications – Recently, businessmen as well as industrialists are very much concerned about the theory of firm in order to make correct decisions regarding what items, how much and how to produce them. All these decisions are directly related with the cost considerations and market situations where the firm is to be operated. In this regard, this paper should be helpful in suggesting the most suitable functional form of production process for the major manufacturing industries of developing countries like Oman. Originality/value – The paper shows originality in substance and makes a unique contribution to the literature on industrial economics in Oman.