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R&D and Productivity Growth in Finnish ICT Manufacturing

  • Economics
  • Mathematics


A stochastic frontier model is applied to firm level panel data from the Finnish ICT manufacturing sector to explore the role of R&D and technological progress in the outstanding productivity growth Finland demonstrated in the latter half of the 1990?s. The sample is representative of over 90 % of the R&D carried out in the sector, which in turn represents about half of corporate R&D in Finland. Constant returns to scale production functions are clearly inappropriate and labour productivity provides a biased view of TFP. Results show increasing returns to scale and output growth to have been, until recent years, more important than technical change in TFP growth. Like all inputs, physical and R&D capital appear to be substitutes to some extent, reducing concern over low overall investment. The technology policy mix appears to have been R&D investment and R&D employment enhancing, at the expense of non-R&D labour and physical capital. Meanwhile, technical change has been R&D saving and labour using, with large and surprisingly persistent firm-specific differences in R&D productivity.

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