nep-ino New Economics Papers
on Innovation
Issue of 2005‒05‒07
twenty-one papers chosen by
Koen Frenken
Universiteit Utrecht

  1. R&D and Patenting Activity and the Propensity to Acquire in High Technology Industries By Panayotis Dessyllas; Alan Hughes
  2. Bankruptcy Law and Entrepreneurship By John Armour; Douglas Cumming
  3. Outside Entrepreneurial Capital By Andy Cosh; Douglas Cumming; Alan Hughes
  4. The Impact of Farmer-Field-Schools on Knowledge and Productivity: A Study of Potato Farmers in the Peruvian Andes By Erin Godtland; Elisabeth Sadoulet; Alain de Janvry; Rinku Murgai; Oscar Ortiz
  5. A logic of multi-level change of routines By Nooteboom,Bart
  6. Environmental Regulation and Technological Innovation with Spillovers By Samiran Banerjee; João E. Gata
  7. Knowledge and Creative Destruction over the Industry Life Cycle - The Case of the German Automobile Industry By Uwe Cantner; Kristina Dreßler; Jens J. Krüger
  8. Integrated graphical framework accounting for the nature and the speed of the learning process: an application to MNEs strategies of internationalisation of production and R&D investment By Mário Alexandre Silva; Aurora A. C. Teixeira
  9. Technology Frames: The Art of Perspective and Interpretation in Strategy By Virginia Acha
  10. Persistent Knowledge Specialisation and Intra-Industry Heterogeneity: an Analysis of the Spanish Pharmaceutical Industry By Pablo D'Este Cukierman
  11. The Dynamics of Innovation Networks By Lionel Nesta; Vincent Mangematin
  12. When Micro Shapes the Meso: Learning Networks in a Chilean Wine Cluster By Elisa Giuliani; Martin Bell
  13. Social Networks of Researchers in Business To Business Marketing: A Case Study of the IMP Group 1984-1999 By Piera Morlacchi; Ian F. Wilkinson; Louise Young
  14. Organisational Memory and Innovation Across Projects: Integrated Service Provision in Engineering Design Firms By Eugenia Cacciatori
  15. Knowledge and Productivity in the World's Largest Manufacturing Corporations By Lionel Nesta
  16. Change, Coordination, and Capabilities By Andrea Prencipe
  17. Sustained Innovation: Career Engineers, Stock Markets, and the Theory of the Innovative Enterprise By William Lazonick; Andrea Prencipe
  18. A Combinatorial Model of Organizational Innovation: The Case of Pilkington Plc By Anna Grandori; Andrea Prencipe
  19. The Impact of Dual Use Controls on UK Science: Results from a Pilot Study By Caitriona McLeish; Paul Nightingale
  20. Modelling and Measuring Scientific Production: Results for a Panel of OECD Countries By Gustavo Crespi; Aldo Geuna
  21. Technical Efficiency in the Iron and Steel Industry: A Stochastic Frontier Approach By Jung Woo Kim; Jeong Yeon Lee; Jae Yong Kim; Hoe Kyung Lee

  1. By: Panayotis Dessyllas; Alan Hughes
    Abstract: In this paper we investigate the incidence of high technology acquisitions using a large international sample of acquisitions by public high technology firms. Controlling for firms’ financial characteristics, we examine the impact of the following innovation-related factors on the propensity to acquire: R&D-intensity as a proxy for R&D inputs; the citation-weighted patent-intensity as a proxy for R&D output; the stock of citation-weighted patents as a proxy for the accumulated stock of knowledge generated by past R&D efforts. The following conclusions can be drawn with respect to the characteristics of acquirers of non-public targets - mainly private firms and former subsidiaries. First, we find support for the view that the propensity to acquire new knowledge-related assets through acquisitions is driven by declining returns from the exploitation of a firm’s existing knowledge base. Second, we find evidence in favour of the make-or-buy theory that acquisitions are a substitute for in-house R&D activity. Third, our results are in accordance with the theoretical argument that a large stock of accumulated knowledge enhances a firm’s ability to absorb external knowledge through acquisitions. These results suggest that smaller acquisitions can be seen as part of an innovation strategy by acquiring firms with relatively low levels of internal R&D which seek to offset low R&D productivity by exploring a range of potential innovation trajectories in new and smaller business units. Interestingly, we find that these interpretations cannot be made for acquirers of the larger public companies.
    Keywords: Mergers and acquisitions, acquisition likelihood, R&D, patents
    JEL: G34 O30 L20
  2. By: John Armour; Douglas Cumming
    Abstract: Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers’ attention. Recent initiatives both in the UK and at EU level have sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Whilst there is an intuitive link between the two, little attention has been paid to the question empirically. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 13 years (1990-2002) and 15 countries in Europe and North America. We compile a new index of the level of how ‘forgiving’ personal bankruptcy laws are, reflecting the time to discharge. This measure varies over time and across the countries studied. We show that bankruptcy law has a more statistically and economically significant effect on self employment rates relative to GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers.
    Keywords: Personal Bankruptcy Law, Entrepreneurship
    JEL: K35 M13
  3. By: Andy Cosh; Douglas Cumming; Alan Hughes
    Abstract: This paper investigates the internal versus external financing decisions among 1900 early stage privately held UK firms in 1996-1997. We study the factors that affect rejection rates in applications for outside finance among the different types of investors, taking into account the non-randomness in a firm’s decision to seek outside finance. The data support the traditional pecking order theory; firms with greater capital expenditures / profits are more likely to seek finance and apply for more external finance. The data further indicate growth oriented firms are much more likely to apply for external finance. There are some differences in the internal versus external financing of female and male founder CEO firms, but these differences are largely attributable to growth orientation. Firms in industries with a greater proportion of larger competitors are less likely to obtain all of their desired outside capital. The data also indicate banks are less likely to finance completely new startups, while venture capital funds are more likely to finance innovative and growth orientated firms. Overall, the data do not indicate the presence of a capital gap in entrepreneurial finance; rather, firms seeking capital are able to secure their requisite financing from at least one of the many different available sources.
    Keywords: Entrepreneurial Finance, Capital Gaps, Pecking Order, Adverse Selection, Gender
    JEL: G21 G22 G23 G24 G31 G32 G35
  4. By: Erin Godtland (U.S. General Accounting Office); Elisabeth Sadoulet (University of California, Berkeley); Alain de Janvry (University of California, Berkeley); Rinku Murgai (Development Economics Research Group, The World Bank); Oscar Ortiz (International Potato Center, Consultative Group on Agricultural Research)
    Abstract: Using survey-data from Peru, this paper evaluates the impact of a pilot farmer-field-school (FFS) program on farmers' knowledge of integrated pest management(IPM) practices related to potato cultivation. We use both regression analysis controlling for participation and a propensity score matching approach to create a comparison group similar to the FFS participants in observable characteristics. Results are robust across the two approaches as well as with different matching methods. We find that farmers who participate in the program have significantly more knowledge about IPM practices than those in the non-participant comparison group. We also find that improved knowledge about IPM practices has a significant impact on productivity in potato production.
    Keywords: agricultural innovations, agricultural productivity, integrated pest management, potato cultivation,
    Date: 2003–11–01
  5. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This paper tries to account for endogenous change of multi-level routines in terms of nested cycles of discovery, in a hierarchy of scripts. Higher-level scripts constitute the selection environment for lower level ones. On any level, a cycle of discovery proceeds from established dominant designs. When subjected to new conditions, a script first tries to adapt by proximate change, in differentiation, with novel selection of subscripts in existing nodes in existing script architecture. Next, in reciprocation it adopts new nodes from other, surrounding scripts. Next, it adapts script architecture, in novel configurations of old and new nodes. In this way, lower level change of subscripts can force higher-level change of superscripts. In this way, institutions may co-evolve with innovation.
    JEL: B52 D21 D83
    Date: 2005
  6. By: Samiran Banerjee; João E. Gata
    Abstract: We present a two-period dynamic model of standard setting under asymmetric information to model the attempts by the Califormia Air Resources Board (CARB) in getting car manufacturers to comply with its phase-in of stringent emissions standards. After CARB chooses an initial emissions standard that ?rms are required to comply with, automakers respond by choosing R&D investment and production levels which provide CARB an imperfect signal whether they are more or less capable of complying with the standard. CARB resets the environmental standard and the ?rms once again choose research and production levels. Firms are Cournot duopolists in the product market and can choose to do research noncooperatively or cooperatively in the presence of spillovers. We show that ?rms will behave strategically and underinvest in research both under competitive and cooperative R&D, though the level of underinvestment — the ratchet effect — is greater under cooperative R&D when spillovers are large. We uncover a fundamental con?ict between the incentives of ?rms to do cooperative research and social welfare: that ?rms will want to engage in cooperative (resp. noncooperative) R&D only when spillovers are low (resp. high) while social welfare is greater under noncooperative (resp. cooperative) research.
    Keywords: Car emissions; dynamic technology-forcing regulation; selfregulation; pre-commitment; cooperative R&D; ratchet effect.
    JEL: L5 O3
  7. By: Uwe Cantner (University of Jena, Faculty of Economics); Kristina Dreßler (University of Jena, Faculty of Economics); Jens J. Krüger (University of Jena, Faculty of Economics)
    Abstract: This paper investigates how the survival of firms over the industry life cycle is affected by different kinds of knowledge, namely post-entry experience, pre-entry experience, and knowledge acquired by innovative activity. Therefore, a statistical survival analysis is performed for the German automobile industry over the period 1886- 1939 which applies a new approach that links instrumental variable estimation with the Cox regression. The main results are that all three knowledge components exert a significantly positive effect on the survival of firms. Furthermore, innovative activity is able to compensate for lacking pre-entry or post-entry experience, completely in accord with Schumpeterian creative destruction.
    Keywords: firm survival, patents, innovation, automobile industry, hazard rates
    JEL: L10 L62 O33 C41
    Date: 2005–04–30
  8. By: Mário Alexandre Silva (Faculdade de Economia, Universidade do Porto); Aurora A. C. Teixeira (CEMPRE, Faculdade de Economia, Universidade do Porto)
    Abstract: Existing illustrations of the learning phenomenon either stress the relationship between flows and stocks, neglecting the chronological time variable, or the speed of knowledge accumulation along time, neglecting the nature of the underlying learning process. In this paper we present a graphical depiction stressing, in an explicit way, both the nature of interplay between flows and stocks and the intensity of the learning process. The four-quadrant graphs that we develop overcome considerable simplification in literature by deriving, by construction, a measure of dynamic gains of knowledge following the interplay of stock of scientific and technological knowledge and the flow of effort in R&D. This scheme is then applied to study the internationalisation of production and R&D, which are strategies followed by multinational firms. Two types of innovation – process innovation and product innovation – are therefore studied constructing, in each case, an industry performance measure adequately indexed to the cumulated knowledge stock at a given moment in time. In any case, the dynamic efficiency measure adopted naturally takes into account both the absolute changes in the technology indexes and the time delays to reach them, which are properly discounted. Regarding multinationals strategies - internationalisation of production and R&D investment -, we begin with the question of finding a new location for using a now well developed production technology, and then deal with the problem of selecting a region of excellence in research to take gains of concentration advantages and local externalities.
    Keywords: Learning; knowledge; technology; R&D; MNEs
    JEL: O31 O32 F23
    Date: 2005–05
  9. By: Virginia Acha (SPRU, University of Sussex)
    Abstract: In this paper, I bring together the literatures of the economics of innovation, corporate strategy and managerial and organizational cognition to explore how and why companies come to different conclusions and strategies for technology when presented with essentially very similar situations and information. Building on the work of Orlikowski and Gash (1994) on technological frames, I seek to explore the role of the technology frame of key senior managers in defining corporate strategy with respect to technology. To provide an empirical basis for the study, I take the case of the 6 leading US vertically integrated oil companies involved in the exploration and production of petroleum during the period 1984 to 1997. The analysis considers two key salients for the technology frame which are operationalised for the six companies based on their R&D expenditures, patents, publications and contrasted with their operational performance measures. These salients reflect respectively adaptational mapping (whereby signals in the environment prompt adaptation) and formational mapping (whereby experience and path-dependency influence interpretation) within the technology frame. The findings indicate support for the proposed approach to proxying technology frames on the two key points of salience for the upstream petroleum industry, and the paper concludes with a short discussion of future lines of research.
    Keywords: technology frames, upstream petroleum, technology strategy, adaptational mapping, formational mapping
    JEL: O32
    Date: 2005–04–26
  10. By: Pablo D'Este Cukierman (SPRU, University of Sussex)
    Abstract: This paper aims to contribute to the analysis of within industry inter-firm variety. Building upon the knowledge-based theory of the firm (Nelson and Winter, 1982; Penrose, 1959; Fransman, 1994), this paper develops two themes. First, the analysis of intra-industry heterogeneity: why do firms that operate in the same industry differ, and why are such differences persistent? Second, the paper investigates the extent to which higher performance is associated with the capacity of firms to expand their knowledge base (rather than with their initial conditions). The main contribution of the paper is empirical, based on a data source consisting of information on documents published in scientific international journals by Spanish pharmaceutical firms. The empirical results support the argument that the firm's knowledge base is a main driver of persistent heterogeneity within industries on the one hand, because of the systematic variety in terms of how firms articulate and organise their research activities and their background knowledge, and on the other hand, because of the positive correlation between the firms' knowledge diversification and performance.
    Keywords: Firm heterogeneity, Knowledge diversification, Bibliometric analysis, Spanish pharmaceutical industry
    JEL: O33 L65
    Date: 2005–04–26
  11. By: Lionel Nesta (SPRU, University of Sussex); Vincent Mangematin (INRA, University Pierre Mendes-France)
    Abstract: We analyse the changing contribution of networks to the innovative performance of 30 pharmaceutical companies from 1989 to 1997. Count data models show that collaborations with universities and biotechnology companies are important determinants of the firms' innovative performance, but their respective contributions diverge when industry matures. Larger firms enjoy a significant size advantage and in-house research activities are highly significant. Returns to scale in research are decreasing over time while the size advantage is increasing. The changing contribution of networks to knowledge production suggests that these are phase-specific, which has substantial managerial and policy implications.
    Keywords: pharmaceutical industry, biotechnology, innovative processes, networks
    JEL: O31 D85
    Date: 2005–04–26
  12. By: Elisa Giuliani (SPRU, University of Sussex); Martin Bell (SPRU, University of Sussex)
    Abstract: Most analyses of the relationship between spatial clustering and the technological learning of firms have emphasised the influence of the former on the latter, and have focused on intra-cluster learning as the driver of innovative performance. This paper reverses those perspectives. It examines the influence of individual firms' absorptive capacities on both the functioning of the intra-cluster knowledge system and its interconnection with extra-cluster knowledge. It applies social network analysis to identify different cognitive roles played by cluster firms and the overall structure of the knowledge system of a wine cluster in Chile. The results show that knowledge is not diffused evenly 'in the air', but flows within a core group of firms characterised by advanced absorptive capacities. Firms' different cognitive roles include some - as in the case of technological gatekeepers - that contribute actively to the acquisition, creation and diffusion of knowledge. Others remain cognitively isolated from the cluster, though in some cases strongly linked to extra-cluster knowledge. Possible implications for policy are noted.
    Keywords: clusters, absorptive capacity, knowledge communities, technological gatekeepers
    JEL: O33
    Date: 2005–04–26
  13. By: Piera Morlacchi (SPRU, University of Sussex); Ian F. Wilkinson (University of New South Wales); Louise Young (University of Technology, Sydney)
    Abstract: Science is a social process that functions through social networks of researchers that form invisible colleges. Analysis of these social networks provides a means for examining the structure of relations among researchers. The Industrial Marketing and Purchasing (IMP) group, "an informal international group of scholars concerned with developing concepts and knowledge in the field of business-to-business marketing and purchasing," is used as a case study of a network of researchers because it has been responsible for considerable research over the last decades in the area of business-to-business marketing, yet its structure remains hidden because of its informal network characteristics. The results of a social network analysis of the IMP group is described based on the pattern of co-authorship at annual IMP conferences. The results reveal a power law distribution of paper co-authorship and a small world network that conforms to the results of studies of other types of social networks. A core network of 57 researchers is identified and its network properties are described, including how it has evolved over time. The study provides the basis for further studies of the social networks of marketing and business researchers.
    Keywords: informal networks, business-to-business marketing
    JEL: D85
    Date: 2005–04–26
  14. By: Eugenia Cacciatori (CRORA, Bocconi University and SPRU, University of Sussex)
    Abstract: This paper provides an exploration of the dynamics of organisational remembering in firms operating through projects. The paper focuses in particular on the deliberate use of experience accumulated in the past in order to sustain innovation in the provision of services. It relies on the notions of boundary objects and brokers to empirically explore how a common memory crossing occupational and organisational boundaries is built. In so doing, it highlights how a boundary object as memory device in a project environment operates at different levels, i.e. personal, project-specific, organisational-specific and occupational specific, and how it takes different formats to perform its roles at each level. Finally, the paper highlights the role of specific communities, beyond that of specific individuals, as boundary brokers.
    Keywords: project development, innovation processes, organisational memory, boundary brokers
    JEL: O22 O31
    Date: 2005–04–26
  15. By: Lionel Nesta (SPRU, University of Sussex)
    Abstract: I examine the relationship between the characteristics of firm knowledge in terms of capital, diversity and relatedness, and productivity. Panel data regression models suggest that unlike knowledge diversity, knowledge capital and knowledge relatedness explain a substantial share of the variance of firm productivity. Activities based on a set of related technological knowledge are more productive than those based on unrelated knowledge because the cost of co-ordinating productive activities decreases as the knowledge used in these activities becomes integrated efficiently. The contribution of knowledge relatedness to productivity is significantly higher in high-technology sectors than in other sectors.
    Keywords: knowledge, productivity, large corporations, knowledge measurement, panel data
    JEL: O33
    Date: 2005–04–26
  16. By: Andrea Prencipe (Università G. D’Annunzio di Pescara, and SPRU, University of Sussex)
    Abstract: Empirical studies on coordination of economic activities focused on the two polar cases of governance mode, namely vertical integration and market exchanges. Whether firms should be vertically integrated or lever market exchanges in the face of change is, however, debated. Two positions have emerged. Some scholars argue that the vertically integrated firm is the appropriate mode of coordination when change occurs, while market exchanges are more appropriate for dealing with stable contexts (Teece, 1996). On the other hand, Harrigan (1984, 1985) contends that firms should rely on market exchanges when technological change renders upstream capabilities obsolete. Based on two case studies of the aircraft engine industry, this paper introduces the concept of systems integration as the primary coordination mechanism in-between markets and hierarchies that firms employ to cope with change. The focus is on multitechnology settings. Multitechnology, multicomponent products intensify the coordination efforts for firms developing them and therefore provide a vantage point to study coordination modes in the face of technological change. The paper argues that systems integration, as a coordination mechanism, comprises a set of different technological and organizational skills, ranging from component assembly through the understanding and integration of the technological disciplines underlying a product, to project management. It shows that from a competitive point of view, systems integration is most appropriately understood as knowledge integration. Systems integrating firms are understood as those organizations that set up the network of actors involved in the industry and lead it from an organizational and technological viewpoint.
    Keywords: technological change, systems integration, knowledge integration, vertical integration, market exchanges
    JEL: O33 L22
    Date: 2005–04–26
  17. By: William Lazonick (INSEAD and University of Massachusetts); Andrea Prencipe (Università G. D’Annunzio di Pescara, and SPRU, University of Sussex)
    Abstract: The aim of this paper is to document the role that career engineers played in the investment strategies and eventual survival of an organization producing large high technology capital goods. Using the theory of innovative enterprise developed by Lazonick and O'Sullivan (2000), we analyze the locus of strategic control and its interactions with the cognitive and behavioral dimensions of Rolls-Royce, nowadays a successful industrial firm. The company has been analyzed during an intense period of radical changes in the ownership structure of the company that followed the firm's misdemeanors. Analysis of the role of engineers is paralleled with an analysis of what influence the firm's exposure to the stock market had on its innovative activities. The case analyzed shows that there was a clear lead by the engineering-related functions, while other functions had little say in important investment decisions. Company decisions were driven by the creed of engineering excellence transmitted from generation to generation of engineers via the recruitment and apprentice systems that were at the basis of the company's internal training policy.
    Keywords: career engineers, investment strategies, Rolls-Royce, innovative processes
    JEL: L10 L62 O31
    Date: 2005–04–26
  18. By: Anna Grandori (CRORA, Bocconi University); Andrea Prencipe (Università G. D’Annunzio di Pescara, and SPRU, University of Sussex)
    Abstract: Based on an in-depth case study of Pilkington Plc, this study illustrates that received perspectives in organization theory and theory of the firm fall short of explaining organizational evolution. The framework of organizational evolution developed in this paper is combinatorial in two ways. First, it shows how factors drawn from different perspectives can be combined in understanding organizational evolution. Second, it shows the explanatory and prescriptive potential of a combinatorial approach to resources and organizational configurations. This approach helps distinguish those features of organizational history that are ineffective and those that are instead effective for the firm survival. In Pilkington, the successful changes of firm boundaries have been predominantly linked to the combination of complementary resources rather than the resolving of transactional problems or realizing economies of scope through related diversification. The changes of internal structure have been successful due to a combination of waves of decentralization and centralization with a stable, robust coordination by communities at the level of research activities.
    Keywords: organizational structure and evolution, Pilkington plc, combinatorial approach, organization theory
    JEL: L20
    Date: 2005–04–26
  19. By: Caitriona McLeish (SPRU, University of Sussex); Paul Nightingale (SPRU, University of Sussex)
    Abstract: Concerns about the proliferation of biological weapons and the threat posed by bioterrorism have assumed greater political prominence in recent years. In response, governments are actively attempting to frustrate the diffusion of technologies, relevant to the production of biological weapons, to regimes and non-state actors which might develop and use such weapons. Their most recent efforts have involved the introduction of a range of new national measures to control access to materials, knowledge and technologies. Preventing the diffusion of the necessary knowledge and technologies used to develop biological weapons is complicated because the underlying technologies often have legitimate and socially beneficial applications. Any controls to prevent their hostile application can also potentially disrupt legitimate activity, thereby generating social costs. For example, anecdotal evidence suggests that the introduction of biosecurity controls in the US and Germany are adversely affecting scientific research in those countries. Governments therefore need to balance these costs against the security benefits that such controls generate. To do this policy makers need information on the impact of these new ‘biosecurity’ measures. However, this is a new area of policy and few impact assessments have been performed. This pilot project, funded by the Economic and Social Research Council3, developed and validated new methods for assessing the impact that UK government biosecurity policies, introduced to prevent legitimate scientific research from being misused, are having on the practice of science. This short report briefly explains the project and outlines a sample of the initial results.
    Keywords: biological weapons, bioterrorism, knowledge, control of proliferation, biosecurity
    JEL: O33
    Date: 2005–04–20
  20. By: Gustavo Crespi (SPRU, University of Sussex); Aldo Geuna (SPRU, University of Sussex)
    Abstract: This paper presents results from employing an econometric approach to examine the determinants of scientific production at cross-country level. The aim of this paper is not to provide accurate and robust estimates of investment elasticities (a doubtful task given the poor quality of the data sources and the modelling problems), but to develop and critically assess the validity of an empirical approach for characterising the production of science and its impact from a comparative perspective. We employ and discuss the limitations of a production function approach to relate investment inputs to scientific outputs using a sample of 14 countries for which we have information about Higher Education Research and Development (HERD). The outputs are taken from the Thomson ISI® National Science Indicators (2002) database on published papers and citations. The inputs and outputs for this sample of countries have been recorded for a period of 21 years (1981-2002). A thorough discussion of data shortcomings is presented in this paper. On the basis of this panel dataset we investigate the profile of the time lag between the investment in HERD and the research output and the returns to national investment in science. We devote particular attention to analysis of the presence of cross-country spillovers. We show their relevance and underline the international effect of the US system.
    Keywords: productivity of science, lag structure, returns to HERD investment, international spillovers
    JEL: L3 O3
    Date: 2005–04–19
  21. By: Jung Woo Kim (Samsung Economic Research Institute, Seoul, Korea); Jeong Yeon Lee (Graduate School of International Studies, Yonsei University); Jae Yong Kim (Korea Institute Public Finance, Seoul Korea); Hoe Kyung Lee (Korea Advanced Institute of Science of Science and Technology, Seoul, Korea)
    Abstract: In this paper we examine the technical efficiency of firms in the iron and steel industry and try to identify the factors contributing to the industry's efficiency growth, using a time-varying stochastic frontier model. Based on our findings, which pertain to 52 iron and steel firms over the period of 1978-1997, POSCO and Nippon Steel were the most efficient firms, with their production, on average, exceeding 95 percent of their potential output. Our findings also shed light on possible sources of efficiency growth in the industry. If a firm is government-owned, its privatization is likely to improve its technical efficiency to a great extent. A firm's technical efficiency also tends to be positively related to its production level as measured by a share of the total world production of crude steel. Another important source of efficiency growth identified by our empirical findings is adoption of new technologies and equipment. Our findings clearly indicate that continued efforts to update technologies and equipment are critical in pursuit of efficiency in the iron and steel industry.
    JEL: L61 C23 O33
    Date: 2005–04

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