Technical Change, Efficiency, Firm Size and Age in an RD Intensive Sector

Pii Berghäll ()

No 390, Discussion Papers from VATT Institute for Economic Research

Abstract: The relationship between firm size and age relative to technical change and efficiency is examined in a highly innovative and dynamic sector, the Finnish ICT equipment manufacturing industry. A stochastic frontier model is applied to an unbalanced firm level panel over the period 1990–2003. The sample is representative of almost half of corporate R&D in Finland. The Method of Moments and Battese-Coelli efficiency measures are obtained to compare permanent and time-varying efficiency levels. Results show firm age to be relatively insignificant. New firms do not dominate technical change. In contrast, firm size makes a substantial contribution to productivity growth, technical change and efficiency. High elasticity of factor inputs result in, on average, highly increasing returns to scale. These factors point towards growing concentration and capital-intensity, which can be expected to further widen the productivity gap between small and large firms. To survive, smaller firms may need to combine frontier technology adoption with expanding scale, e.g., by mergers, to improve both technical and scale efficiency.

Keywords: ICT industry, total factor productivity, technical change, technical efficiency, RD elasticity, firm size, firm age, Economic growth, Taloudellinen kasvu, Labour market, Työmarkkinat, Labor market and policies promoting economic growth, Työmarkkinat ja kasvua tukeva politiikka, L630 - Microelectronics; Computers; Communications Equipment, O300 - Technological Change; Research and Development: General, O390 - Technological Change: Other, (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cse, nep-eff, nep-ent and nep-ino
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