Technological innovation and profit

Abstract

This study examines the effect of technological innovation on economic performance. Solow’s growth accounting measures the contribution of productivity to economic growth, but the active role of technological change in attaining economic growth is ignored. Kaldor emphasizes capital accumulation in technological process, but does not cover the dynamic process of technological innovation. Schumpeter explains the dynamic process by focusing on capital accumulation and efficiency. Following Schumpeter’s view of innovation, we empirically analyze the dynamics of technological innovation measured in terms of capital turnover and return on sales. Capital turnover represents process and organizational innovation, and return on sales reflects product innovation. For the empirical analysis, a large panel data set of 445 Korean firms during the period 2000–2015 is used. The empirical study performs panel regression analysis by using fixed effects model, FGLS model, dynamic GMM model, and a split sample method. The empirical results support the positive relationship between technological innovation and profitability.