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Do innovation and human capital explain the productivity gap between small and large firms?

Laia Castany (), Enrique Lopez-Bazo and Rosina Moreno ()
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Laia Castany: Faculty of Economics, University of Barcelona

No 200716, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: Empirical evidence is compelling that large firms are more productive than small firms. The hypothesis in this paper is that the productivity differences between small and large firms are associated with two of the main determinants of a firm’s performance: the human and technological capital that firms incorporate. We suggest that the contribution of these factors in explaining the size of the productivity gap might not only be due to the fact that large firms make a more extensive use of them, but also because large firms obtain higher returns from their investment in human and technological capital. The evidence we obtain for a comprehensive sample of Spanish manufacturing firms (1990-2002) supports this hypothesis, which has important implications for the effectiveness of policies designed to improve productivity in SMEs by stimulating innovation and the use of more skilled workers.

Keywords: total factor productivity; innovation; skilled labour; firm size. (search for similar items in EconPapers)
JEL-codes: D24 J24 L25 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2007-11, Revised 2007-11
New Economics Papers: this item is included in nep-bec, nep-eff, nep-ent, nep-hrm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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