UNIVERSITÄT POTSDAM - Prof. Dr. Paul JJ Welfens

duction factors and the indicator variables for technical progress, as well as for the role
of information and communication were considered, first of all the first step of Engle
and Granger’s two-step procedure was applied, in which existing long-term relations
were identified and estimated without specifying the short-term dynamics. However,
the distribution of the estimators of the cointegrating vector provided by such a static
regression is generally non-normal, and so inference cannot be drawn about the significance
of the individual parameters by using the standard ‘t’ tests. For this reason the
three-step procedure, proposed by Engle and Yoo (cf. ENGLE / YOO, 1991) was subsequently
used to remedy this shortcoming. Their third step, added to the Engle-
Granger two-step procedure, provided a correction to the parameter estimates of the
first stage static regression which made them asymptotically equivalent to FIML and
provided a set of standard errors which allows the valid calculation of standard ‘t’ tests.
The superior long-term production function was then used to at least roughly assess the
effects of the technical progress approximated by the indicator variables and of the
need for information and communication, approximated by the number of telephone
calls, as well as the impact of the usual production factors on economic growth from
1961 until 1990.
Tab 8: Estimation Results for the Augmented Production Function
Variable First step of Engle/Granger Third step of Engle/Yoo
unrestricted α + β =1
unrestricted α + β =1
Constant -3.1574 -2.7882 -3.4344 -3.1174
(-4.8813) a) (-5.5155) (-12.8774) (-8.4231)
k t
0.4073 0.3634 0.4372 0.3448
(4.9118) (5.3738) (11.2103) (5.9142)
l t
0.7460 0.6366 0.7893 0.6552
(5.4446) -- (15.9455) --
pat t−2
0.1611 0.1833 0.1738 0.2315
(1.6913) (1.9955) (6.2744) (3.4501)
lex t
0.0494 0.0631 0.0498 0.0833
(1.5696) (2.2805) (4.4865) (3.5447)
tc t
0.1580 0.1803 0.1390 0.1795
(2.7992) (3.5497) (5.7917) (4.2943)
D80 -0.0168 -0.0165 -0.0169 -0.0161
(-2.1905) (-2.1551) (-7.6818) (-2.9815)
D81 -0.0202 -0.0223 -0.0202 -0.0239
(-2.6738) (-3.0828) (-8.7826) (-4.3455)
R 2 0.9977 0.9974 0.9976 0.9973
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