Productivity implications of R&D, innovation, and capital accumulation for incumbents and entrants: the case of Estonia

Abstract

In this paper, using Estonian Community Innovation Survey data, we study the role of R&D, capital accumulation, and innovation output on pro- ductivity for entrants and incumbents. We find that the impact of R&D invest- ment on labour productivity is larger for the entrants compared to the incum- bents. Entrants are found to be more productive and more heterogeneous in their total factor productivity (TFP) than the incumbents. Moreover, entrants who innovate are on average, in terms of TFP, 25% more productive than the entrants who do not, while the corresponding figure for the incumbents is 7%. In addition, it is mostly the incumbents who benefit from within-industry knowledge that is produced outside their own firm. Finally, for both entrants and incumbents, em- bodied technological change through capital accumulation is found to be more effective in generating productivity growth than R&D expenditure.