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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.

Suggested Citation

  • 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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    5. Vivek Ghosal, 2009. "Business Strategy and Firm Reorganization under Changing Market Conditions," CESifo Working Paper Series 2673, CESifo Group Munich.
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    7. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, January.
    8. Pesendorfer, Martin, 2003. " Horizontal Mergers in the Paper Industry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 495-515, Autumn.
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    Cited by:

    1. Häyrinen, Liina & Mattila, Osmo & Berghäll, Sami & Toppinen, Anne, 2016. "Lifestyle of health and sustainability of forest owners as an indicator of multiple use of forests," Forest Policy and Economics, Elsevier, vol. 67(C), pages 10-19.
    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. 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.
    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. Xiuli Sun & Haizheng Li & Vivek Ghosal, 2017. "Firm-level Human Capital and Innovation: Evidence from China," CESifo Working Paper Series 6370, CESifo Group Munich.
    6. Ghosal, Vivek & Stephan, Andreas & Weiss, Jan, 2014. "Decentralized Regulation, Environmental Efficiency and Productivity," Ratio Working Papers 229, The Ratio Institute.
    7. Vivek Ghosal, 2009. "Business Strategy and Firm Reorganization under Changing Market Conditions," CESifo Working Paper Series 2673, CESifo Group Munich.

    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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