Public policy, innovation and total factor productivity : An application to Taiwan's manufacturing industry

Chia-Lin Chang (1) , Stéphane Robin (2)

1 NCHU - National Chung Hsing University
2 BETA - Bureau d'Économie Théorique et Appliquée

This paper analyses the impact of innovation on productivity in Taiwan. Using a panel of 48,794 firms observed over the 1997-2003 period and distributed across 23 industries. we compute total factor productivity (TFP) by estimating Translog production functions with C, L, E, M inputs. We evaluate the impact of being an innovator on TFP using propensity score matching. The rationale is that, over the period, innovating firms are likely to have benefited from one of many innovation policy measures known as statute for upgrading industry (SUI) (until 1999) or "New SUI" (after 1999). Our results show a significantly negative effect of being an innovator on TFP in most industries, both before and after 1999. This suggests that firms having innovation expenditures either perform less well than the others because of unobserved factors. or are further away from the production frontier. Therefore, innovation in Taiwan seems to be associated with catching-up strategies.

Keywords: Newly industrialized countries; Total factor productivity; Computation propensity score matching; Firm-level panel data; Manufacturing industry

Domains: Economics and Finance; Methods and statistics; Applications [stat.AP]

Chia-Lin Chang, Stéphane Robin. Public policy, innovation and total factor productivity : An application to Taiwan's manufacturing industry. Mathematics and Computers in Simulation, 2008, 79 (3), pp.352-367. ⟨10.1016/j.matcom.2008.01.005⟩. ⟨hal-03691878⟩