The Role of Innovation and Management Practices in Determining Firm Productivity
In this paper, we compare the impacts of management practices and innovation on productivity, using data from a unique firm-level survey covering 30 countries in Eastern Europe and Central Asia in the period 2011–2014. We estimate a structural model linking productivity to innovation activities and management practices. Results suggest that both returns to innovation and returns to management practices are important drivers of productivity. However, productivity in lower-income economies is affected to a larger extent by management practices than by innovation, while the opposite holds in higher-income economies. These results imply that firms operating in less favourable business environments can reap large productivity gains by improving the quality of management practices, before engaging in innovation through imitating and adapting foreign technologies.
KeywordsInnovation Management practices Productivity
JEL ClassificationO1 O3 M2
This paper builds on the authors’ work on the 2014 EBRD Transition Report. We thank an anonymous referee for offering very constructive suggestions. We would like to thank Erik Berglöf, Werner Bönte, Ralph de Haas, Sergei Guriev, Jacques Mairesse, Alexander Plekhanov, Alessandro Sterlacchini, John Van Reenen and Adalbert Winkler for helpful discussions as well as the participants at the 8th MEIDE conference, the 6th Asia–Pacific Innovation conference, UCL SSEES “Achievements and Challenges for the Emerging Economies of Central Europe” Economics and Business Conference, and seminars at the EBRD, KOFF, OECD, SSB Norway, Université de Lille, Universidad de Navarra, Bergische Universität Wuppertal and University of Piacenza for their comments and suggestions. The views expressed in this paper are our own and do not necessarily represent those of the institutions of affiliation.
- Acemoğlu, Daron, Ufuk Akcigit, and Murat Alp Celik. 2017. Young, restless and creative: Openness to disruption and creative innovations. Mimeo, June 5. https://economics.mit.edu/files/13176. Last accessed on 9 September 2018.
- Aghion, Philippe. 2016. Competitiveness and growth policy design. In Moving to the Innovation Frontier, ed. Christian Keuschnigg. CEPR Press eBook, pp. 5–30. http://www.voxeu.org/sites/default/files/Innovation%20Frontier.pdf. Last accessed on 3 May 2016.
- Akcigit, Ufuk, Harun Alp, and Michael Peters. 2016. Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries. NBER Working paper No. 21905. http://www.nber.org/papers/w21905.pdf. Last accessed on 30 March 2016.
- Arnold, Jens, Giuseppe Nicoletti, and Stefano Scarpetta. 2008. Regulation, Allocative Efficiency and Productivity in OECD Countries: Industry and Firm-Level Evidence. OECD Economics Department Working paper No. 616.Google Scholar
- Arundel, Anthony, Kieran O’Brien, and Nuttaneeya Torugsa. 2013. How firm managers understand innovation: Implications for the design of innovation survey. In Handbook of Innovation Indicators and Measurement, ed. Fred Gault, 88–108. Cheltenham: Edward Elgar Publishing.Google Scholar
- Balsmeier, Benjamin, and Dirk Czarnitzki. 2014. How Important is Industry-Specific Managerial Experience for Innovative Firm Performance?. ZEW Discussion paper no. 14-011.Google Scholar
- Bircan, Çağatay, and Ralph De Haas. 2015. The Limits of Lending: Banks and Technology Adoption Across Russia. EBRD Working paper no. 178.Google Scholar
- Bloom, Nicholas, Erik Brynjolfsson, Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta-Eksten and John Van Reenen. 2017. What Drives Differences in Management?. US Census Bureau Center for Economic Studies Paper No. CES-WP-17-32.Google Scholar
- EBRD. 2009. Transition Report 2009: Transition in Crisis? Chapter 5. London: EBRD.Google Scholar
- EBRD. 2014. Transition Report 2014: Innovation in Transition. London: EBRD.Google Scholar
- European Commission. 2014. Industrial innovation policy. http://ec.europa.eu/enterprise/policies/innovation/policy/index_en.htm. Last accessed on 15 August 2014.
- Hall, Bronwyn H., and Vania Sena. 2014. Appropriability mechanisms, innovation and productivity: Evidence from UK. NBER Working Paper No. 20514.Google Scholar
- Mairesse, Jacques, Pierre Mohnen, and Élisabeth Kremp. 2005. The importance of R&D and innovation for productivity: A reexamination in light of the 2000 French Innovation Survey. Annales d’Économie et de Statistique 79(80): 487–527.Google Scholar
- Mohnen, Pierre, and Bronwyn H. Hall. 2013. Innovation and productivity: An update. Eurasian Business Review 3(1): 47–65.Google Scholar
- Van Leeuwen, George, and Shikeb Farooqui. 2008. ICT, innovation and productivity. In Eurostat “Information society: ICT impact assessment by linking data from different sources”, Final Report, 222–239. https://ec.europa.eu/eurostat/documents/341889/725524/2006-2008-ICT-IMPACTS-FINAL-REPORT-V2.pdf/72f0967d-a164-46ad-a6d0-246be5a6d418. Last accessed on 1 October 2018.