Innovative growth: the role of market power and negative selection

Hannu Piekkola and Jaana Rahko

Economics of Innovation and New Technology, 2020, vol. 29, issue 6, 603-624

Abstract: This paper relies on register-based statistical data from Finland to measure broad research and development (R&D), organizational capital (OC) and information and communication technology (ICT) investments as innovation inputs in addition to formal survey-based R&D and CIS survey data on innovations. The linked panel data are appropriate for a comparison of low-market-share (small) and large-market-share (large) firms. We analyze the productivity growth and profitability of Finnish firms with varying market power. In contrast to high-market-share firms, low-market-share firms are characterized by low profit derived from new innovations. This study suggests that in addition to imitative growth, a ‘negative selection mechanism’ explains the high productivity growth relative to the low profits.

Date: 2020
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DOI: 10.1080/10438599.2019.1655878

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