Technological Progress at the Sectoral Level: the Sato Production Function Approach

The main aim of this paper is to reveal the relationship between the economic output, labour and capital, and to determine technological progress type in the four sectors of the manufacturing industry in selected Central European countries during the period 1995-2015. The methodology is based on the Sato production function which is a not frequently used case of the non-CES production function. For this purpose, the original Sato specification is modified by adding the time variable that allows us to observe how the relationship between the production and the input factors changes over time. The Nonlinear Least Squares method with an appropriate initial values setting is used to estimate its parameters. Based on these parameters the isoquant maps are depicted and the borders of the economically efficient region are determined. Within that area, the isoquant slope development described by the values of the marginal rate of technical substitution is used to identify the type of the technological progress in the investigated sectors for each country. In spite of some individual characteristics the results also prove the common features of the development.