Comparing government support, firm heterogeneity, and inter-firm spillovers for productivity enhancement: Evidence from the Korean solar energy technology industry

Abstract

Numerous issues have deterred investment in innovation, including technological and market uncertainty and the avoidance of long-run investment in renewable energy technologies by financial decision makers. To address this issue, we investigate the direct and indirect (inter-firm spillover) effects of government support and firm heterogeneity on productivity. Using panel data from Korean solar energy technology manufacturers, we determine the significance of firm heterogeneity in improving productivity. Specifically, we establish the positive impact of physical capital and organizational slack on productivity in the short and long run, and we find a long-run positive-spillover effect of intellectual capital on productivity. The results also show that productivity increases only when government support interacts with firm heterogeneity. This increase is related to the short- and long-run direct effects of the interaction between intellectual capital and non-R&D (Research and Development) subsidies, between organizational slack and R&D subsidies, and the long-run spillover effect via the interaction between non-R&D subsidies and organizational slack. Lastly, the policy and strategic repercussions of firm-level productivity enhancement in the solar energy technology industry are deliberated based on the findings of this study.