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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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  • Ghosal, Vivek & Nair-Reichert, Usha, 2009. "Investments in modernization, innovation and gains in productivity: Evidence from firms in the global paper industry," Research Policy, Elsevier, vol. 38(3), pages 536-547, April.
    • Handle: RePEc:eee:respol:v:38:y:2009:i:3:p:536-547
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    2. Trott, Paul & Simms, Chris, 2017. "An examination of product innovation in low- and medium-technology industries: Cases from the UK packaged food sector," Research Policy, Elsevier, vol. 46(3), pages 605-623.
    3. Vivek Ghosal & Andreas Stephan & Jan F. Weiss, 2019. "Decentralized environmental regulations and plant‐level productivity," Business Strategy and the Environment, Wiley Blackwell, vol. 28(6), pages 998-1011, September.
    4. Peltoniemi, Mirva, 2013. "Mechanisms of capability evolution in the Finnish forest industry cluster," Journal of Forest Economics, Elsevier, vol. 19(2), pages 190-205.
    5. Janger, Jürgen & Schubert, Torben & Andries, Petra & Rammer, Christian & Hoskens, Machteld, 2017. "The EU 2020 innovation indicator: A step forward in measuring innovation outputs and outcomes?," Research Policy, Elsevier, vol. 46(1), pages 30-42.
    6. Chiou‐Fong Wei & Chang‐Tang Chiang & Tun‐Chih Kou & Bruce C Y Lee, 2017. "Toward Sustainable Livelihoods: Investigating the Drivers of Purchase Behavior for Green Products," Business Strategy and the Environment, Wiley Blackwell, vol. 26(5), pages 626-639, July.
    7. Ghosal, Vivek & Stephan, Andreas & Weiss, Jan, 2014. "Decentralized Regulation, Environmental Efficiency and Productivity," Ratio Working Papers 229, The Ratio Institute.
    8. Vivek Ghosal, 2009. "Business Strategy and Firm Reorganization under Changing Market Conditions," CESifo Working Paper Series 2673, CESifo.
    9. Sun, Xiuli & Li, Haizheng & Ghosal, Vivek, 2020. "Firm-level human capital and innovation: Evidence from China," China Economic Review, Elsevier, vol. 59(C).
    10. Florian Jaehn & Raisa Juopperi, 2019. "A Description of Supply Chain Planning Problems in the Paper Industry with Literature Review," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 36(01), pages 1-39, February.
    11. Tang, Haodan & Fang, Senhui & Jiang, Dianchun, 2022. "The market value effect of digital mergers and acquisitions: Evidence from China," Economic Modelling, Elsevier, vol. 116(C).
    12. Ann Hipp & Udo Ludwig & Jutta Günther, 2021. "Unable to innovate or just bad circumstances? Comparing the innovation system of a state-led and market-based economy," Bremen Papers on Economics & Innovation 2111, University of Bremen, Faculty of Business Studies and Economics.
    13. Vivek Ghosal, 2015. "Business Strategy and Firm Reorganization: Role of Changing Environmental Standards, Sustainable Business Initiatives and Global Market Conditions," Business Strategy and the Environment, Wiley Blackwell, vol. 24(2), pages 123-144, February.

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    More about this item

    Keywords

    Investment Innovation Productivity Organizational behavior;

    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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