Technological capability and firm efficiency in Taiwan (China)

This article highlights the importance of firms' own investments in technological capability. Recent research on the nature and extent of technical change in developing countries shows that the accumulation of technological capability should be treated not as a by-product of some other activity but as an activity in its own right. This research also points to the critical role of firms and indicates that firm-level efforts to obtain international knowledge may have higher payoffs when accompanied by complementary investments in the development of in-house technological capabilities. Using micro data from Taiwan (China), the authors estimate the technical efficiency of firms. They proxy firm-level efforts at modifying or adapting technology by expenditures on research and development and on-the-job training. They then use a stochastic production frontier model to estimate the correlation of a firm's efficiency both with investments in training and research and development and with international linkages (such as exporting, direct foreign investment, and foreign technology licenses). The evidence from manufacturing firms in Taiwan suggests that efficiency is positively correlated with the firm's investments in training and research and development and with its informal contacts with foreign purchasers through export sales.