The European Journal of Development Research

, Volume 27, Issue 1, pp 122–139 | Cite as

Technological Capabilities, Institutions and Firm Productivity: A Multilevel Study

  • Micheline Goedhuys
  • Martin SrholecEmail author
Original Article


National framework conditions directly affect the productivity of firms, but also moderate returns on their technological efforts. Although this has long been recognised, there is a dearth of quantitative analyses that openly consider this hypothesis. Using a data set of 15 425 manufacturing firms in 32 developing countries, we investigate the impact of national institutions on firms’ total factor productivity with the help of multilevel modelling. The results indicate that technological infrastructure and educational system make a large difference, and also most significantly interact with firms’ technological capabilities. However, governance measures that are conventionally considered in the literature explain surprisingly little.


productivity innovation technological capability institutions micro data multilevel modelling 


Les institutions nationales déterminent directement la productivité des entreprises, mais aussi la rentabilité de leurs efforts en matière de technologie. Bien que cela ait été reconnu depuis longtemps, il y a bien peu d’analyses quantitatives qui ouvertement analysent cette hypothèse. On a étudié l’impact des institutions nationales sur la productivité multifactorielle des entreprises utilisant un modèle hiérarchique et une base de données incluant 15 425 entreprises manufacturières en 32 pays en voie de développement. Les résultats indiquent que l’infrastructure technologique et le système éducatif ont une forte influence, et qu’ils interagissent avec les capabilités technologiques des entreprises. Cependant, les mesures de gouvernance conventionnellement utilisées dans la littérature ont bien peu de pouvoir explicatif.



Financial support from the Czech Science Foundation (GAČR) project P402/10/2310 on ‘Innovation, productivity and policy: What can we learn from micro data?’, STRIKE (Science and Technology Research in a Knowledge-based Economy) funded as Action No. IS0604 by COST for short term scientific missions (COST-STSM-IS0604-04148), and institutional support RVO 67985998 from the Academy of Sciences of the Czech Republic and VINNOVA Core Funding of Centers for Innovation Systems Research project 2010-01370 on ‘Transformation and Growth in Innovation Systems: Innovation Policy for Global Competitiveness of SMEs and R&I Milieus’ is gratefully acknowledged. Earlier versions of the article were presented at the Globelics 7th International Conference in Dakar, Senegal, October 2009, the 6th Biennial Conference of the Czech Economic Society in Prague, November 2010 and the DRUID 2011 Conference in Copenhagen, June 2011. The article has benefited from comments and suggestions from participants at these and other events, in particular Théophile Azomahou, Bart Verspagen, Cristina Chaminade, Gustavo Crespi, Jan Fagerberg, Mark Knell, Lubomír Lízal, Bengt-Åke Lundvall, Pierre Mohnen, Roberta Rabellotti, Adam Szirmai and Reinhilde Veugelers, as well as from the referees of this journal. All the usual caveats apply.


  1. Abramovitz, M. (1986) Catching up, forging ahead, and falling behind. Journal of Economic History 46 (2): 386–406.CrossRefGoogle Scholar
  2. Acs, Z. and Naudé, W. (2013) Entrepreneurship, stages of development, and industrialization. In: A. Szirmai, W. Naude and L. Alcorta (eds.) Pathways to Industrialization in the Twenty-First Century. Oxford: Oxford University Press, pp. 373–392.CrossRefGoogle Scholar
  3. Aghion, P. and Howitt, P. (1992) A model of growth through creative destruction. Econometrica 60 (2): 323–351.CrossRefGoogle Scholar
  4. Almeida, R. and Fernandes, A.M. (2008) Openness and technological innovations in developing countries: Evidence from firm-level surveys. Journal of Development Studies 44 (5): 701–727.CrossRefGoogle Scholar
  5. Archibugi, D. and Coco, A. (2005) Measuring technological capabilities at the country level: A survey and a menu for choice. Research Policy 34 (2): 175–194.CrossRefGoogle Scholar
  6. Baumol, W.J., Batey Blackman, S.A. and Wolff, E.N. (1989) Productivity and American Leadership: The Long View. Cambridge, MA: The MIT Press.Google Scholar
  7. Bogliacino, F., Perani, P., Pianta, M. and Supino, S. (2012) Innovation and development. The evidence from innovation surveys. Latin American Business Review 13 (3): 219–261.CrossRefGoogle Scholar
  8. Borensztein, E., De Gregorio, J. and Lee, J.W. (1998) How does foreign direct investment affect economic growth? Journal of International Economics 45 (1): 115–135.CrossRefGoogle Scholar
  9. Caves, D., Christensen, L. and Diewert, E. (1982) Output, input and productivity using superlative index numbers. The Economic Journal 92 (365): 73–96.CrossRefGoogle Scholar
  10. Clougherty, J. and Grajec, M. (2008) The impact of ISO 9000 diffusion on trade and FDI: A new institutional analysis. Journal of International Business Studies 39 (4): 613–633.CrossRefGoogle Scholar
  11. Cohen, W.M. and Levinthal, D.A. (1990) Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly 35 (1): 128–152.CrossRefGoogle Scholar
  12. Commander, S. and Svejnar, J. (2011) Business environment, exports, ownership, and firm performance. The Review of Economics and Statistics 93 (1): 309–337.CrossRefGoogle Scholar
  13. Dahlman, C.J., Ross-Larson, B. and Westphal, L. (1987) Managing technological development. Lessons from the newly industrialized countries. World Development 15 (6): 759–775.CrossRefGoogle Scholar
  14. Edquist, C. (1997) Systems of Innovation: Technologies, Institutions and Organizations. London: Pinter.Google Scholar
  15. Fagerberg, J. (1987) A technology gap approach to why growth rates differ. Research Policy 16 (2–4): 87–99.CrossRefGoogle Scholar
  16. Fagerberg, J. and Srholec, M. (2008) National innovation systems, capabilities and economic development. Research Policy 37 (9): 1417–1435.CrossRefGoogle Scholar
  17. Fagerberg, J., Srholec, M. and Verspagen, B. (2010) Innovation and economic development. In: B. Hall and N. Rosenberg (eds.) Handbook of the Economics of Innovation, Vol. II. North Holland, the Netherlands: Elsevier, pp. 833–872.Google Scholar
  18. Figueiredo, P.N. (2006) Introduction. International Journal of Technology Management 36 (1/2/3): 1–13.Google Scholar
  19. Furman, J.L., Porter, M.E. and Stern, S. (2002) The determinants of national innovative capacity. Research Policy 31 (6): 899–933.CrossRefGoogle Scholar
  20. Goedhuys, M., Janz, N. and Mohnen, P. (2014) Knowledge-based productivity in ‘low-tech’ industries: Evidence from firms in developing countries. Industrial and Corporate Change 23 (1): 1–23.CrossRefGoogle Scholar
  21. Goedhuys, M. and Sleuwaegen, L. (2013) The impact of international standards certification on the performance of firms in less developed countries. World Development 47 (1): 87–101.CrossRefGoogle Scholar
  22. Goldstein, H. (2003) Multilevel Statistical Models. London: Arnold.Google Scholar
  23. Griffith, R., Huergo, E., Mairesse, J. and Peters, B. (2006) Innovation and productivity across four European countries. Oxford Review of Economic Policy 22 (4): 483–498.CrossRefGoogle Scholar
  24. Grossman, G.M. and Helpman, E. (1990) Comparative advantages and long run growth. American Economic Review 80 (4): 796–815.Google Scholar
  25. Hausman, J.A. (1978) Specification tests in econometrics. Econometrica 46 (6): 1251–1271.CrossRefGoogle Scholar
  26. Henisz, W.J. (2002) The institutional environment for infrastructure investment. Industrial and Corporate Change 11 (2): 355–389.CrossRefGoogle Scholar
  27. Janz, N., Lööf, H. and Peters, B. (2004) Firm level innovation and productivity – is there a common story across countries? Problems and Perspectives in Management 2 (2): 1–22.Google Scholar
  28. Kaufmann, D., Kraay, A. and Mastruzzi, M. (2009) Governance Matters VIII. Aggregate and Individual Governance Indicators 1996-2008. World Bank Policy Research Working Paper 4978. Washington: The World Bank.Google Scholar
  29. Kim, L. (1980) Stages of development of industrial technology in a developing country: A model. Research Policy 9 (3): 254–277.CrossRefGoogle Scholar
  30. Lall, S. (1992) Technological capabilities and industrialization. World Development 20 (2): 165–186.CrossRefGoogle Scholar
  31. Lööf, H., Heshmati, A., Asplund, R. and Nåås, S.O. (2003) Innovation and performance in manufacturing industries: A comparison of the Nordic countries. The Icfaian Journal of Management Research 2 (1): 5–35.Google Scholar
  32. Lundvall, B.Å. (1992) National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning. London: Pinter Publishers.Google Scholar
  33. Manders, B. and de Vries, H. (2012) Does ISO 9001 pay? – Analysis of 42 studies. ISO Focus+ 3 (9): 34–35.Google Scholar
  34. Marshall, M.G. and Jaggers, K. (2009) Polity IV Dataset (Computer file; version p4v2007), College Park, MD: Center for International Development and Conflict Management, University of Maryland.Google Scholar
  35. Miles, I. (2005) Innovation in services. In: J. Fagerberg, D.C. Mowery and R.R. Nelson (eds.) Oxford Handbook of Innovation. London: Oxford University Press, pp. 433–458.Google Scholar
  36. Mohnen, P., Mairesse, J. and Dagenais, M. (2006) Innovativity: A comparison across seven European countries. Economics of Innovation and New Technology 15 (4/5): 391–413.CrossRefGoogle Scholar
  37. Nelson, R. (1993) National Innovation Systems: A Comparative Analysis. New York: Oxford University Press.Google Scholar
  38. OECD (2009) Innovation in Firms: A Microeconomic Perspective. Paris, France: OECD.Google Scholar
  39. Porter, M., Sachs, J. and McArthur, J. (2002) The Global Competitiveness Report 2001–2002. New York: Oxford University Press.Google Scholar
  40. Raffo, J., Lhuillery, S. and Miotti, L. (2008) Northern and southern innovativity: A comparison across European and Latin American countries. European Journal of Development Research 20 (2): 219–239.CrossRefGoogle Scholar
  41. Raudenbush, S.W. and Bryk, A.S. (2002) Hierarchical Linear Models:Applications and Data Analysis Methods, 2nd edn. London: Sage Publications.Google Scholar
  42. Raudenbush, S.W., Bryk, A.S., Cheong, Y.F. and Congdon, R.T. (2004) HLM: Hierarchical Linear and Nonlinear Modeling. Chicago, IL: Scientific Software International.Google Scholar
  43. Rodrik, D. (2007) One Economics, Many Recipes, Globalization, Institutions and Economic Growth. New Jersey: Princeton University Press.Google Scholar
  44. Romer, P. (1986) Increasing returns and long-run growth. Journal of Political Economy 94 (5): 1002–1037.CrossRefGoogle Scholar
  45. Sampaio, P., Saraiva, P. and Guimaraes Rodrigues, A. (2009) ISO 9001 certification research: Questions, answers and approaches. International Journal of Quality and Reliability Management 26 (1): 38–58.CrossRefGoogle Scholar
  46. Schumpeter, J. (1934) The Theory of Economic Development. Cambridge, MA: Harvard University Press.Google Scholar
  47. Srholec, M. (2011) A multilevel analysis of innovation in developing countries. Industrial and Corporate Change 20 (6): 1539–1569.CrossRefGoogle Scholar
  48. Stata (2009) Stata Base Reference Manual, Release 11. College Station, TX: Stata Press.Google Scholar
  49. Terlaak, A. and King, A.A. (2006) The effect of certification with the ISO 9000 Quality management standard: A signaling approach. Journal of Economic Behaviour and Organization 60 (4): 579–602.CrossRefGoogle Scholar
  50. Triplett, J.E. and Bosworth, B. (2004) Productivity in the U.S. Services Sector: New Sources of Economic Growth. Washington DC: Brookings Institution Press.Google Scholar
  51. Uppenberg, K. and Strauss, H. (2010) Innovation and productivity growth in the EU services sector, EIB Economic and Financial Studies. Luxemburg: EIB.Google Scholar
  52. USPTO (2011) Number of utility patent applications filed in the united states, by country of origin,, accessed 28 November 2011.
  53. Verspagen, B. (1991) A new empirical approach to catching up or falling behind. Structural Change and Economic Dynamics 2 (2): 359–380.CrossRefGoogle Scholar
  54. World Bank (2003) Productivity and Investment Climate Survey (PICS): Implementation Manual. New York: World Bank.Google Scholar
  55. World Bank (2011) World Development Indicators 2011. New York: World Bank.Google Scholar

Copyright information

© European Association of Development Research and Training Institutes 2014

Authors and Affiliations

  1. 1.United Nations University, UNU-MERITMaastrichtThe Netherlands
  2. 2.Center for Economic Research and Graduate Education-Economics Institute (CERGE-EI)Prague
  3. 3.Centre for Innovation, Research and Competence in the Learning Economy (CIRCLE)LundSweden

Personalised recommendations