Estimados Académicos FEN,

Les extendemos la invitación al seminario organizado por el Departamento de Economía. En esta ocasión se presentará el trabajo titulado Business Strategy and Economic Development.

Presenta: Matias Braun, ESE Business School, Universidad de Los Andes.

Co-autores: Sebastián Bustos, Harvard University y Luis Felipe Cespedes, Department of Economics, Universidad de Chile.

Abstract: Productivity differentials have been documented as the main determinant of the variation of income per capita across countries. In this paper, we study if innovation and adoption strategies implemented by firms within a country, at different stages of development, can explain differences in productivity levels and rates of growth across industries and countries. We compute a novel innovation strategy index for firms based on textual analysis of financial reports issued in the U.S. by firms from developed and developing countries and from an ample set of industries. Our empirical results indicate that firms that pursue an innovation-based strategy exhibit higher productivity levels compared to firms that follow an adoption strategy where cost-reduction is the key element. Nonetheless, the optimal strategy of firms depends on the distance to the technological frontier. Firms far from the frontier grow faster when implementing an cost-based strategy, while an innovation-based strategy suits firms closer to the technological frontier better. We provide evidence indicating  that financial market sophistication, competition policy and innovation capabilities --such as educational level, and intellectual property protection-- are key determinants of the strategy implemented by firms within a country. This empirical evidence indicates that non-convergence traps may occur if competition policy, innovation capabilities and financial market sophistication are not enhanced as a country moves closer to the technological frontier.

Saludos cordiales,

Dirección de Investigación