International Journal of Business and Economics Volume 17, No. 2 September, 2018

Using Hierarchical Cluster Analysis as a Tool to Fit Aggregate Production Functions

Rafael Solis

Department of ISDS Craig School of Business, California State University, Fresno

K.C. Tseng

Department of Finance, Craig School of Business, California State University, Fresno

Abstract

In this study, we discuss the use of clustering algorithms to group countries based on a set of macroeconomic variables and their effect on the estimation of the parameters of a Cobb-Douglas type production function. The findings suggest that the utilization of clustering methodologies could play an important role when grouping of countries may be needed without adversely affecting the meaning of the parameters of the fitted production functions.

Keywords：hierarchical clustering, Cobb-Douglas production function, macroeconomics.

JEL Classifications：C31, C38, C51, C82, D24.

BACK