Working Paper: NBER ID: w28080
Authors: Xavier Cirera; Diego A. Comin; Marcio Cruz; Kyung Min Lee
Abstract: We collect detailed data on the technologies used in a comprehensive set of business functions in a representative sample of firms in Vietnam, Senegal, and the Brazilian state of Ceará, and construct measures of technology sophistication at the business function and firm levels. There is a large variance of sophistication across firms, but we find that the variance of technology sophistication across the business functions of a firm (within-firm variance) is 2.8 times larger. We develop a model of technology adoption with heterogeneity in adoption costs across business functions and with non-homothetic production that induces heterogeneity in the marginal value of technology sophistication across functions. The model predicts a stable cross-firm relationship between sophistication in the business function and firm-level technology that we call the technology curve. We find that the slopes of technology curves differ greatly across business functions and that curves account for one third of within-firm variance in sophistication. A development accounting exercise shows that cross-firm variation in sophistication measures accounts for thirty percent of cross-firm differences in productivity.
Keywords: Technology sophistication; Firm productivity; Business functions; Technology adoption
JEL Codes: D2; E23; L23; O10; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average firm sophistication (L25) | firm-level productivity (D22) |
| within-firm variance in technology sophistication (L15) | firm-level productivity (D22) |
| business function sophistication (L21) | firm-level technology (L63) |
| cross-firm differences in technology sophistication (L15) | productivity gap between firms (L25) |
| business function sophistication (L21) | within-firm variance in technology sophistication (L15) |