Absorptive capacity in New Zealand firms: Measurement and importance

To the best of our knowledge, this paper reports the first set of nationally representative results on the importance of ‘absorptive capacity’ for firms operating in New Zealand between 2005-15. Absorptive capacity is generally defined as a firm's ability to internalise external knowledge. Using data principally from the Business Operations Survey, we measure absorptive capacity across a 10-year period and investigate if it remains stable in the long term. This is followed by considering how firms’ characteristics vary across levels of absorptive capacity and most importantly whether such capacity determines firms’ productivity performance across the primary, manufacturing and service sectors. Our results show that relative to other influences, absorptive capacity as measured here has a substantial influence on exporting, innovation, and undertaking R&D, and consequently on firm-level productivity. Set against relatively poor productivity performance, the paper concludes with a discussion of how government should consider helping firms to boost their levels of absorptive capacity in New Zealand.