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Seoul Journal of Economics - Vol. 35 , No. 4
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Seoul Journal of Economics - Vol. 35, No. 4, pp. 317-358
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2022
Received 28 Oct 2022 Accepted 31 Oct 2022
DOI: https://doi.org/10.22904/sje.2022.35.4.001

Linking Innovation Systems, International Integration, and Investment Climate to Firm Productivity in Developing Countries
Mahyar Adibi ; Keun Lee
Mahyar Adibi, Independent Researcher, Ph. D. in Economics, Seoul National University, Seoul, Korea (mahyar.adibi@gmail.com)
Keun Lee, Corresponding author, Distinguished Professor, Department of Economics, Seoul National University, Seoul, Korea (kenneth@snu.ac.kr)
Visiting Professor, College of Business and Economics, University of Johannesburg, Johannesburg, South Africa

Funding Information ▼

JEL Classification: O100; O290; O300; O570.

Abstract

This paper analyzes the importance of investment climate (IC), international integration (II), and innovation system (IS) variables on firm productivity. These variables are measured at the firm, sector, and country levels. It also investigates the interaction effects among them. Multilevel-mixed effect analysis is conducted using the World Bank Enterprise Survey data for 20 developing countries in 21 sectors. Results indicate that firm-level variables tend to be more robust than sector- or country-level variables and that more II variables are shown be significant than either IC or IS variables. Specifically, sector-level II variables are significant, whereas sector-level IC variables and sector-level R&D variables are insignificant. Sector-level IC and IS variables become significant only when they interact with firm-level variables. The results underscore the importance of firm-level capabilities, which can be enhanced by II (e.g., firm-level learning by exporting and Foreign Direct Investment [FDI] arrangement) and IS (e.g., firm-level education and training) as well as by spillover from sector-level II and human capital. Results also reveal the channels through which IC may affect firm productivity. IC exhibits an effect on firm productivity when it interacts with firm-level capabilities and activities.

Keywords: Firm productivity, Innovation systems, Investment climate, International integration, Multilevel analysis, Developing country
Acknowledgments

Earlier versions of this paper have been presented in several occasions, including the 2016 Globelics conference in Bandung and the New Structural Economics conference held in Beijing in 2014. The first author acknowledges the financial support from the Center of New Structural Economics at Peking University, and the second author, the National Research Foundation of South Africa (Grant Number: 118873) via the DSI/NRF/Newton Fund Trilateral Chair in Transformative Innovation, the 4IR and Sustainable Development.

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