Determinants of industry-level production capacity in Poland

Abstract

The paper deals with the production capacity – innovation nexus. It focuses on development of total factor productivity (TFP), which is one of the determinants of production capacity of the economy. The analysis is carried out using 2-digit NACE rev. 2 level Polish manufacturing data covering the most recent period of 2008-2012. TFP is estimated using theoretical framework based on a Cobb-Douglas production function and an attempt is made to identify the role of innovation activities in forming TFP in case of economy of an emerging country under recent economic crisis. The findings suggest that the non-R&D innovation activities are of more importance in determining TFP of Polish manufacturing divisions than R&D expenditures.