National framework conditions mediate the effect of technological
capabilities of firms on their productivity. Although this has been
recognized in the literature for a long time, a quantitative test that
explicitly considers this hypothesis has been lacking. Using a World
Bank datasets of about 19,000 firms in 42 countries, most of which are
developing, we estimate a multilevel production function with effects of
firm’s technological capabilities nested in the national framework
conditions. Our results confirm that various facets of firm’s
technological capabilities and national economic, technological and
institutional conditions influence total factor productivity of firms.
Furthermore, we find that the effects of the national conditions and
firm’s technological capabilities are closely intertwined with each
other. Adherence to international standards, formal training of workers
and access to technology through foreign ownership make more difference
for productivity of firms in less developed countries, while R&D
capabilities on the contrary boost significantly more performance of
firms in countries at the technological frontier. Different features of
the national framework are shown to be responsible for this.
Keywords: Productivity, innovation, technological capability, institutions, multilevel modeling.
JEL codes: C39, D24, O12, O14, O31, O43
UNU-MERIT Working Papers ISSN 1871-9872