Laggards v Leaders: Productivity and Innovation Catchup (nº1, 2024)

Abstract

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The decision to innovate or to adopt existing technologies is driven by productivity levels. Large productive incumbents may have an advantage over new entrants and laggards and lead innovation, yet depending on the type of technology, the latter may catch up by pursuing more advanced technologies. Different technologies can therefore widen or shrink the distribution of productivity across firms (Benhabib et al., 2021). Using a novel dataset of around 60,000 Spanish firms from different industries between 2017-2019, we show that investment in a particular technological innovation – online sales – is indeed pursued by the sector’s most productive and largest firms, yet laggard firms do try to catch up by investing more in new technologies, despite starting at lower productivity levels. This suggests that costly innovation and easy adoption may actually curb overall productivity growth as more firms’ free ride on innovation efforts by the leaders in each sector.