R&D, International Trade and Creative Destruction—Empirical Findings from Finnish Manufacturing Industries*

  • Mika Maliranta
Original Article


The determinants of productivity-enhancing micro-level restructuring are examined empirically with a panel of the twelve Finnish manufacturing industries. It is hypothesized that R&D leads to productivity diversity among plants, which in turn leads to the gradual reshuffling of input shares in the presence of dynamic competitive pressure. The effect of the “creative destruction” on industry productivity growth is measured with the between-component of productivity decomposition. Econometric results indicate with reasonable robustness that R&D generates creative destruction with a lag of several years. Some evidence is found that imports stimulate productivity-enhancing restructuring, especially when domestic R&D is low.


R&D competition international trade productivity plant-level restructuring 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Abranovic, W.A., Statistical Thinking and Data Analysis Methods for Managers. Addison-Wesley, 1997.Google Scholar
  2. Acemoglu, D. and Shimer R., “Productivity gains from unemployment insurance,” European Economic Review, vol. 44 no. 7, pp. 1195–1224, 2000.Google Scholar
  3. Acemoglu, D., Aghion, P., and Zilibotti, F., Distance to frontier, selection, and economic growth, National Bureau of Economic Research, Inc, NBER Working Papers, No. 9066, 2002.Google Scholar
  4. Arellano, M. and Bond, S., “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations,” Review of Economic Studies, vol. 58 no. 2, pp. 277–297, 1991.Google Scholar
  5. Arellano, M. and Bover, O., “Another look at the instrumental variable estimation of error-components models,” Journal of Econometrics, vol. 68 no. 1, pp. 29–51, 1995.Google Scholar
  6. Arrow, K.J., “Uncertainty and the welfare economics of medical care,” American Economic Review, American Economic Association, vol. 53, pp. 941–973, 1963.Google Scholar
  7. Baily, M.N., Hulten, C., and Campbell, D., “Productivity dynamics in manufacturing plants’,” Brookings Papers on Economic Activity. Microeconomics, pp. 187–267, 1992.Google Scholar
  8. Baldwin, J.R., The Dynamics of Industrial Competition. A North American perspective. Cambridge University Press, 1993.Google Scholar
  9. Baldwin, J.R., Beckstead, D., and Girard, A., The importance of entry to canadian manufacturing with an appendix on measurement issues, Statistics Canada, Research Paper No. 189, 2002.Google Scholar
  10. Baumol, W.J., “Four sources of innovation and stimulation of growth in the dutch economy,” De Economist, vol. 152 no. 3, pp. 321–351, 2004.Google Scholar
  11. Benhabib, J. and Spiegel, M.M., “The role of human capital in economic development—evidence from aggregate cross-country data,” Journal of Monetary Economics, vol. 34, pp. 143–173, 1994.Google Scholar
  12. Bernard, A.B. and Jensen, J.B., “Exceptional exporter performance: cause, effect, or both?” Journal of International Economics, vol. 47 no. 1, pp. 1–25, 1999.Google Scholar
  13. Bertola, G. and Rogerson, R., “Institutions and labor reallocation,” European Economic Review, vol. 41 no. 6, pp. 1147–1171, 1997.Google Scholar
  14. Blundell, R. and Bond, S., “Initial conditions and moment restrictions in dynamic panel data models,” Journal of Econometrics, vol. 87 no. 1, pp. 115–143, 1998.Google Scholar
  15. Bond, S.R., “Dynamic panel data models: a guide to micro data methods and practice,” Portuguese Economic Journal, vol. 1 no. 2, p. 141, 2002.Google Scholar
  16. Bond, S., Hoeffler, A., and Temple, J., GMM estimation of empirical growth models, University of Bristol, Discussion Papers No. 01/525, 2001.Google Scholar
  17. Boone, J., Competition, CEPR Discussion Paper, No. 2636, 2000a.Google Scholar
  18. Boone, J., “Competitive pressure: the effects on investments in product and process innovation,” RAND Journal of Economics, vol. 31, p. 549, 2000b.Google Scholar
  19. Bureau of Economic Analysis, Survey of current business, U.S. Department of Commerce. Economics and Statistics Administration, July 1995.Google Scholar
  20. Bureau of Labor Statistics, Multifactor productivity trends in manufacturing, 2001. Washington D.C., United States Department of Labor, News (available at, 2004.
  21. Davis, S.J., Haltiwanger, J.C., and Schuh, S., Job Creation and Destruction. MIT Press: Cambridge, MA and London, 1996.Google Scholar
  22. Disney, R., Haskel, J., and Heden, Y., “Restructuring and productivity growth in UK manufacturing,” Economic Journal, vol. 113 no. 489, pp. 666–694, 2003.Google Scholar
  23. Dwyer, D.W., “Technology locks, creative destruction, and nonconvergence in productivity levels,” Review of Economic Dynamics, vol. 1 no. 2, pp. 430–473, 1998.Google Scholar
  24. Esposti, R. and Pierani, P., “Building the knowledge stock: lags, depreciation, and uncertainty in R&D investment and link with productivity growth,” Journal of Productivity Analysis, vol. 19 no. 1, pp. 33–58, 2003.Google Scholar
  25. Foster, L., Haltiwanger, J., and Krizan, C.J., in Aggregate Productivity Growth: Lessons from Microeconomic Evidence. New developments in Productivity Analysis. University of Chicago Press: Chicago and London, pp. 303–363, 2001.Google Scholar
  26. Guellec, D. and Van Pottelsberghe De La Potterie, B., “From R&D to productivity growth: do the institutional settings and the source of funds of R&D matter?” Oxford Bulletin of Economics & Statistics, vol. 66 no. 3, pp. 353–378, 2004.Google Scholar
  27. Häikiö, M., Nokia: The Inside Story. Prentice Hall, 2002.Google Scholar
  28. Hall, B.H. and Mairesse, J., “Exploring the relationship between R&D and productivity in french manufacturing firms,” Journal of Econometrics, vol. 65 no. 1, pp. 263–293, 1995.Google Scholar
  29. Hopenhayn, H.A., “Entry, exit, and firm dynamics in long run equilibrium,” Econometrica, vol. 60 no. 5, pp. 1127–1150, 1992.Google Scholar
  30. Huggett, M. and Ospina, S., “Does productivity growth fall after the adoption of new technology?” Journal of Monetary Economics, vol. 48 no. 1, pp. 173–195, 2001.Google Scholar
  31. Ilmakunnas, P. and Maliranta, M., “The turnover of jobs and workers in a deep recession: evidence from the finnish business sector,” International Journal of Manpower, Emerald, vol. 24, pp. 216–246, 2003.Google Scholar
  32. Jones, C.I. and Williams, J.C., “Measuring the social return to R&D,” Quarterly Journal of Economics, vol. 113 no. 4, pp. 1119–1135, 1998.Google Scholar
  33. Jorgenson, D.W., Ho, M.S., and Stiroh, K.J., “Growth of US industries and investments in information technology and higher education,” Economic Systems Research, vol. 15 no. 3, pp. 279, 2003.Google Scholar
  34. Jovanovic, B., “Selection and the evolution of industry,” Econometrica, vol. 50 no. 3, pp. 649–670, 1982.Google Scholar
  35. Jungmittag, A., Innovations, technological specialisation and economic growth in the EU, European Commission, Economic Papers No. 199, 2004.Google Scholar
  36. King, G., Tomz, M., and Wittenberg, J., “Making the most of statistical analyses: improving interpretation and presentation,” American Journal of Political Science, vol. 44 no. 2, pp. 347–361, 2000.Google Scholar
  37. Krueger, A.B. and Lindahl, M., “Education for growth: why and for whom?” Journal of Economic Literature, American Economic Association, vol. 39, p. 1101, 2001.Google Scholar
  38. Lederman, D. and Maloney, W.F., R&D and development, The World Bank, Policy Research Working Paper Series 3024, 2003.Google Scholar
  39. Lee, J.-W., “Capital goods imports and long-run growth,” Journal of Development Economics, vol. 48 no. 1, pp. 91–110, 1995.Google Scholar
  40. Llerena, P. and Oltra, V., “Diversity of innovative strategy as a source of technological performance,” Structural Change and Economic Dynamics, vol. 13 no. 2, pp. 179–201, 2002.Google Scholar
  41. Mairesse, J. and Kremp, E., “A look at productivity at the firm level in eight french service industries,” Journal of Productivity Analysis, vol. 4 no. 1–2, pp. 211–234, 1993.Google Scholar
  42. Maliranta, M., “Privately and publicly financed R&D as determinants of productivity—evidence from finnish enterprises,” in Asplund, R. (ed.) Public R&D Funding, Technological Competitiveness, Productivity, and Job Creation. The Research Institute of the Finnish Economy (ETLA): Helsinki, pp. 49–85, 2000.Google Scholar
  43. Maliranta, M., Productivity growth and micro-level restructuring. Finnish experiences during the turbulent decades, The Research Institute of the Finnish Economy ETLA, Discussion Papers No. 757, 2001.Google Scholar
  44. Maliranta, M., Micro Level Dynamics of Productivity Growth. An Empirical Analysis of the Great Leap in Finnish Manufacturing Productivity in 1975–2000, The Research Institute of the Finnish Economy (Etla), A 38 Series (available at, 2003.
  45. Maliranta, M. and Rouvinen, P., ICT and Business Productivity: Finnish Micro-Level Evidence. The Economic Impact of ICT; Measurement, Evidence and Implications. OECD: Paris, pp. 213–240, 2004.Google Scholar
  46. Mankinen, R., Rouvinen, P., and Ylä-Anttila, P., Palveluiden tuottavuus—kilpailu ja teknologia muuttavat rakenteita (Productivity in Service—Structural Changes Induced by Increasing Competition and Technology Advance, with an abstact in Enlish), The Research Institute of the Finnish Economy, Discussion Papers No. 829, 2002.Google Scholar
  47. Mansfield, E., “Rates of return from industrial research and development,” American Economic Review, vol. 55, pp. 310–322, 1965.Google Scholar
  48. Mansfield, E., Intrafirm Rates of Diffusion of an Innovation. Innovation, Technology and the Economy: Selected Essays of Edwin Mansfield. Volume 2. Aldershot, U.K., Elgar; distributed in the U.S. by Ashgate, Brookfield, Vt.: 51–62, 1995.Google Scholar
  49. Melitz, M.J., “The impact of trade on intra-industry reallocations and aggregate industry productivity,” Econometrica, vol. 71 no. 6, pp. 1695–1725, 2003.Google Scholar
  50. Myllyntaus, T., “Technology transfer and the contextual filter in the finnish setting. tranfer channels and mechanism in a historical perspective,” in Vuori, S. and Ylä-Anttila, P. (eds.) Mastering Technology Diffusion—The Finnish Experience. The Research Institute of The Finnish Economy (ETLA), Sarja B 82 Series: Helsinki, pp. 195–251, 1992.Google Scholar
  51. Nickell, S.J., “Biases in dynamic models with fixed effects,” Econometrica vol. 49 no. 6, pp. 1417–1426, 1981.Google Scholar
  52. Nickell, S.J., “Competition and corporate performance,” Journal of Political Economy, vol. 104 no. 4, pp. 724–746, 1996.Google Scholar
  53. Nicoletti, G. and Scarpetta, S., “Regulation, productivity and growth: OECD evidence,” Economic Policy, vol. 18 no. 36, pp. 9–72, 2003.Google Scholar
  54. OECD, Science, Technology and Industry Outlook 2000. Organisation for Economic Co-Operation and Development: Paris, 2000.Google Scholar
  55. OECD, Regulatory Reform in Finland: Enhancing Market Openness through Regulatory Reform. OECD: Paris, 2003.Google Scholar
  56. Pakes, A. and Ericson, R., “Empirical implications of alternative models of firm dynamics,” Journal of Economic Theory, vol. 79 no. 1, pp. 1–45, 1998.Google Scholar
  57. Parente, S.L., “Technology adoption, learning-by-doing, and economic growth,” Journal of Economic Theory, vol. 63 no. 2, pp. 346–369, 1994.Google Scholar
  58. Pesaran, M.H. and Smith, R., “Estimating long-run relationships from dynamic heterogeneous panels,” Journal of Econometrics, vol. 68 no. 1, pp. 79–113, 1995.Google Scholar
  59. Pryor, F.L., “Quantitative notes on the extent of governmental regulations in various OECD nations,” International Journal of Industrial Organization, vol. 20 no. 5, pp. 693–714, 2002.Google Scholar
  60. Ramey, V.A. and Shapiro, M.D., “Displaced capital: a study of aerospace plant closings,” Journal of Political Economy, University of Chicago Press, vol. 109, p. 958, 2001.Google Scholar
  61. Rouvinen, P., “R&D-productivity dynamics: causality, lags, and ‘dry holes’. Journal of Applied Economics, Universidad del CEMA, vol. 5, p. 123, 2002.Google Scholar
  62. Scarpetta, S., Hemmings, P., Tressel, T., and Woo, J., The role of policy and institutions for productivity and firm dynamics: evidence from micro and industry data. Paris: OECD Economics Department Working Papers, No. 329, 2002.Google Scholar
  63. Schumpeter, J., Capitalism, Socialism and Democracy. Harper Torchbooks: New York, 1942.Google Scholar
  64. Statistics Finland, Tuottavuuskatsaus 2003 (Review of Productivity 2003). Multiprint Oy: Helsinki, 2004.Google Scholar
  65. Tomz, M., Wittenberg, J., and King, G., CLARIFY: Software for Interpreting and Presenting Statistical Results. Version 2.1, Stanford University, University of Wisconsin, and Harvard University. January 5. Available at, 2003.
  66. van Ark, B., Inklaar, R., and McGuckin, R. “Changing Gear”. Productivity, ICT and Services: Europe and the United States, University of Groningen, Research Memorandum GD-60 (available at, 2002.
  67. Whelan, K., “A guide to U.S. chain aggregated nipa data,” Review of Income & Wealth, Blackwell Publishing Limited, vol. 48, p. 217, 2002.Google Scholar
  68. Zellner, A., “On the aggregation problem: a new approach to a troublesome problem. in Fox, K.A., Sengupta, J.K., and Narasimham, G.V.L. (eds.), Economic Models, Estimation, and Risk Programming: Essays in Honor of Gerhard Tintner. Springer-Verlag: New York, pp. 335–362, 1969.Google Scholar

Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  1. 1.The Research Institute of the Finnish Economy (ETLA)HelsinkiFinland

Personalised recommendations