How does the renewal of products and services affect firms’ productivity?

How does the renewal of products and services affect firms’ productivity?

Productivity growth in Finland has remained low for more than a decade, but the reasons behind the stagnation remain unclear. Entry and exit of firms are generally recognized as important drivers of productivity growth. In addition to these well-studied sources, renewal also occurs within firms. For example, greenhouse gas abatement may be an important reason for companies to change and renew their products. Some companies renew their products and services to such extent that they switch from one industry to another. In fact, industry switch by firms is surprisingly common.

The aim of this research project is to study the renewal of companies through industry switching and its impact on productivity growth. Since climate change will inevitably shape industries for years to come and cause renewal of products on a larger scale in the future, this project also examines how reducing greenhouse gas emissions in industries related to energy efficiency and renewable energy production has already driven firms to renew their products. The study utilizes Statistics Finland’s firm data that cover essentially all firms in the Finnish business sector.

This research project will produce new insights into the underlying reasons of productivity stagnation. The project will provide results that will help better understand the business sector’s capacity for renewal. In addition, this research project will produce completely new information about the structural change and dynamics in the industries related to energy efficiency and renewable energy. The project will provide information on how stricter emission targets can influence productivity dynamics.

New information on the effects of products’ renewal closely relates to innovation activities of firms, their success and ability to compete in the market. This is very relevant to the Finnish innovation policy. Since the impacts of firms’ renewal indicate the success of their innovation activities, the results of the project can offer valuable policy recommendations for the innovation policy in Finland.

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