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
