HOW IS INCOME DISTRIBUTED AMONG THE FACTORS OF PRODUCTION?

Abstract

This paper gives an overview of the distribution of income among the factors ofproduction with a specific view on the case of Albania. It presents some literatureabout the distribution of income and explains in detail the concepts of the personaldistribution of income and of the functional distribution of income. Then it goes intothe specific analysis of income distribution in Albania. For the preparation of thispaper a lot of available data for the overall economic situation of Albania havebeen used. Mainly, the data are gathered from the publishing of internationalfinancial organizations like the World Bank and International Monetary Fund andalso from the publishing of Albanian Central Bank and the Albanian Institute ofStatistics. The data were taken for a period of 14 years, from 1997 to 2010. Thedata used are output, labour (no. of employees) and capital (foreign directinvestment). These data are integrated into the Cobb-Douglas production function.Excel programme has been used to elaborate the data. From the regression model,it is shown that labour contributes to 77 percent of the income and capital accountsfor 23 perent of the income in Albania. As a conclusion, the Cobb-Douglasproduction function can be used in the case of Albania and it gives results that aresimilar to the original CD function.