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Investments in Modernization, Innovation and Gains in Productivity: Evidence from Firms in the Global Paper Industry


  • Ghosal, Vivek
  • Nair-Reichert, Usha


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 is important because it 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 of operations: (i) mechanical, (ii) chemicals, (iii) monitoring devices and (iv) information technology. We find that firms which made decisions to implement 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 and mergers and acquisitions. Two broad messages emerge from our study. First, firms’ decisions to undertake investments in modernization and various forms of incremental innovations appear to be critical for achieving gains in productivity. While these may typically generate small gains on a year-to-year basis, they can compound to form meaningful differences in performance, productivity and competitive position across firms in the longer-run. Second, 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. While this paper focuses on the pulp and paper industry, our broad framework and methodology is general and can be applied to understanding firms’ strategies related to enhancing performance and productivity in a variety of industries.

Suggested Citation

  • Ghosal, Vivek & Nair-Reichert, Usha, 2007. "Investments in Modernization, Innovation and Gains in Productivity: Evidence from Firms in the Global Paper Industry," MPRA Paper 5459, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:5459

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    References listed on IDEAS

    1. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, vol. 5(3-4), pages 287-320.
    2. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 339-376.
    3. Vivek Ghosal, 2009. "Business Strategy and Firm Reorganization under Changing Market Conditions," CESifo Working Paper Series 2673, CESifo Group Munich.
    4. 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.
    5. Pesendorfer, Martin, 2003. " Horizontal Mergers in the Paper Industry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 495-515, Autumn.
    6. John Sutton, 1997. "Technologie a tržní struktura
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    7. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
    8. Kevin J. Stiroh, 2002. "Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?," American Economic Review, American Economic Association, vol. 92(5), pages 1559-1576, December.
    9. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, January.
    10. Erik Brynjolfsson & Lorin Hitt, 1996. "Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending," Management Science, INFORMS, vol. 42(4), pages 541-558, April.
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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


    Pulp and paper industry; investment; modernization; 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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