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Investments in modernization, innovation and gains in productivity: Evidence from firms in the global paper industry

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  • Ghosal, Vivek
  • Nair-Reichert, Usha

Abstract

This paper examines the impact of investments in modernization and innovation on productivity in a sample of firms in the global pulp and paper industry. This industry has traditionally accounted for significant amounts of employment and capital investment in North America and Europe. In contrast to much of the existing literature which focuses on the impact of R&D and patents on firms' performance and productivity, we examine data on actual investment transactions in four main areas: (i) mechanical, (ii) chemicals, (iii) monitoring devices and (iv) information technology. We find that firms that implemented a greater number of investment transactions in modernization achieved higher productivity, and these estimated quantitative effects are greater than the impact of standard innovation variables such as patents and R&D. Investment transactions in the information technology and digital monitoring devices imparted a particularly noticeable boost to productivity. These results are obtained after controlling for other firm-specific variables such as capital intensity or mergers and acquisitions. Thus, firms' decisions to undertake investments in modernization and incremental innovations appear to be critical for achieving gains in productivity, compounding to form meaningful differences in performance, productivity and competitive position across firms in the longer run. For some of the traditional industries like pulp and paper, R&D and patents seem to be particularly poor indicators of innovation and, more generally, how firms go about achieving gains in productivity.

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Bibliographic Info

Article provided by Elsevier in its journal Research Policy.

Volume (Year): 38 (2009)
Issue (Month): 3 (April)
Pages: 536-547

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Handle: RePEc:eee:respol:v:38:y:2009:i:3:p:536-547

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Web page: http://www.elsevier.com/locate/respol

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Keywords: Investment Innovation Productivity Organizational behavior;

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References

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  1. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York.
  2. Erik Brynjolfsson & Lorin Hitt, 1996. "Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending," Management Science, INFORMS, vol. 42(4), pages 541-558, April.
  3. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 1999. "Information Technology, Workplace Organization and the Demand for Skilled Labor: Firm-Level Evidence," NBER Working Papers 7136, National Bureau of Economic Research, Inc.
  4. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, vol. 5(3-4), pages 287-320.
  5. Vivek Ghosal, 2009. "Business Strategy and Firm Reorganization under Changing Market Conditions," CESifo Working Paper Series 2673, CESifo Group Munich.
  6. Martin Pesendorfer, 1998. "Horizontal Mergers in the Paper Industry," NBER Working Papers 6751, National Bureau of Economic Research, Inc.
  7. John Sutton, 1997. "Technology and Market Structure," Politick√° ekonomie, University of Economics, Prague, vol. 1997(1), pages 29-45.
  8. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
  9. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468.
  10. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  11. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September.
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Cited by:
  1. Vivek Ghosal, 2009. "Business Strategy and Firm Reorganization under Changing Market Conditions," CESifo Working Paper Series 2673, CESifo Group Munich.
  2. Peltoniemi, Mirva, 2013. "Mechanisms of capability evolution in the Finnish forest industry cluster," Journal of Forest Economics, Elsevier, vol. 19(2), pages 190-205.
  3. Ghosal, Vivek & Stephan , Andreas & Weiss, Jan, 2014. "Decentralized Regulation, Environmental Efficiency and Productivity," Working Paper Series in Economics and Institutions of Innovation 342, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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