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

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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.