Firms Size and Directed Technological Change

The analysis of the characteristics of firms helps understanding the causes and the consequences of the direction of technological change. Firms differ substantially with respect to the type of technological knowledge they can generate and exploit with the introduction of technological innovations. This in turn has major effects on the direction of technological change they are able to introduce. Large firms able to command the recombinant generation of codified knowledge with a strong scientific base are more likely to introduce neutral technological changes that consist in a shift effect of production functions. Small firms that rely more on tacit and external knowledge are more likely to rely on technologies directed towards the most intensive use of locally abundant production factors. The effects of this difference in terms of the resulting total factor productivity growth are important and can be grasped only when the changes of output elasticity of production factors in growth accounting are properly appreciated. The empirical evidence for a sample of 6600 Italian firms observed during the years 1996 - 2005 confirms that large firms introduced mainly neutral technological changes while small firms with lower levels of profitability introduced biased technological changes.