FactorsaffectingTFPformationinmanufacturinginPoland.Applicationofadynamicpanelmodel.docVIP

Barbara Dańska-Borsiak University of ?ód? Factors affecting TFP formation in manufacturing in Poland. Application of a dynamic panel model 1. Introduction Total factor productivity (TFP) is defined as a product that can be created using unit inputs of the production factors. Its growth can be used to assess changes in the effectiveness of the production process induced by technological progress. The values of the variable are not observable and one way of seeking them is the Solow’s production function. This paper primarily aims to estimate TFP values in the Polish sectors covered by section D ?manufacturing” and analyse factors that form this variable. The analytical tools used in the investigation were panel data models: a groupwise heteroskedasticity model and a dynamic model. 2. Methodology Panel data models are estimated using a special type of cross-section-time data where the number of observed objects N exceeds, sometimes considerably, the number of points in time T. A distinctive feature of the models’ structure is that they distinguish a constant-in-time and object-specific group effects. A dynamic panel data model has the form: , (1) for i = 1,….,N, t = 1,….,T. The group effects αi can be treated as random (then they are part of the error term) or fixed (then they become an intercept). Whether or not αi are random, the lagged explained variable is correlated with the group effects (constant in time). Therefore, the estimation methods applied to static panel data models are unsuitable for model (1), as their estimators would be inconsistent and biased. The literature of the subject proposes alternative methods for estimating the dynamic panel data models. An overview of the methods can be found, for instance, in Baltagi (2008) and Hsiao (2003). The proposed solutions take advantage of the Method of Instrumental Variables, the Maximum Likelihood Method or the Generalized Method of Moments (the GMM). One of GMM advantages is the possibility of making altern