The aggregation problem: The case of a Cobb-Douglas production function for European Union countries

The Cobb-Douglas production function has been extensively studied in the literature, yielding a variety of different results regarding partial input elasticities and economies of scale. However, the behavior of this function has not been examined for countries with similar income levels under a common economic environment, while taking into account the generalizability of the data. Using panel data analysis, this study finds uniform characteristics for the countries of the European Union, while significant differences are observed across countries regarding the magnitude of partial input elasticities and economies of scale when time series regression analysis is applied. Thus, the comparison between each country and overall as a group showed that data aggregation can mask heterogeneity observed at the individual country level even among relatively homogeneous countries.