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The Effects of Innovation on Performance of Korean Firms

  • Heshmati, Almas

    ()

    (Ratio)

  • Kim, Yee-Kyoung

    ()

    (Seoul National University)

  • Kim, Hyesung

    (Seoul National University)

This study empirically examines the relationship between knowledge capital and performance heterogeneity at the firm level. The model is based on a knowledge production function comprising of four interdependent equations linking innovativeness to innovation input, innovation output and productivity. The empirical part is based on Korean firm level innovation data. The model is estimated using advanced econometric methods. We investigate whether innovation is a significant and contributing determinant of performance heterogeneity among firms. In examining the relationship between innovation and productivity we correct for selectivity and simultaneity biases. The results show that there is a two-way causal relationship between knowledge capital and labor productivity. Firm-specific effects positively contribute to innovation output but they are negatively related to productivity. Industry heterogeneity does not affect innovation output or productivity.

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Paper provided by The Ratio Institute in its series Ratio Working Papers with number 90.

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Length: 35 pages
Date of creation: 25 Apr 2006
Date of revision:
Handle: RePEc:hhs:ratioi:0090
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  1. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  2. Zvi Griliches & Tor Jakob Klette, 1999. "Empirical patterns of firm growth and R&D investment: a quality ladder model interpretation," IFS Working Papers W99/25, Institute for Fiscal Studies.
  3. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
  4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  5. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
  6. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-51, July.
  7. 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.
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