Abstract
Several scholars as well as industry professionals have claimed that there is a “softwarebiased shift” in the nature and direction of innovation in that software development is a core part of innovation activities in firms across a wide array of industries. Empirical firm-level evidence of such a shift is still scant. We employ new and unique firm-level survey data on the frequency and nature of software development among firms in Sweden, matched with the Community Innovation Survey (CIS). We find robust evidence supporting a software-bias in innovation in that software development is associated with a higher likelihood of introducing innovations as well as higher innovation sales among firms in both manufacturing and services industries. Furthermore, this positive relationship is stronger for firms employing in-house software developers than for those that only use external developers, suggesting that there is a hierarchy but possibly also a complementarity between internal and external software development. We also find support for complementarity between software-based technology and human capital; the estimated marginal effect of software development on innovation is particularly strong for firms that combine in-house software development with a highly educated workforce in STEM as well as in other disciplines.
Highlights
Digitalization has evolved from being primarily associated with the ICT industry in the early 1990s to becoming a general purpose tech nology (GPT) that permeates the entire economy (Bresnahan and Traj tenberg, 1995; McAfee and Brynjolfsson, 2017)
The firm-level survey data on software development have been matched with the latest Community Innovation Survey (CIS 2018), which allows us to develop established measures of innovation out comes in the form of the introduction of new products, as well as sales attributed to innovation
Even after con trolling for several sets of control variables that are common in the empirical analyses of firm-level innovation, the estimated influence of software development on the likelihood of introducing innovations is sig nificant
Summary
Digitalization has evolved from being primarily associated with the ICT industry in the early 1990s to becoming a general purpose tech nology (GPT) that permeates the entire economy (Bresnahan and Traj tenberg, 1995; McAfee and Brynjolfsson, 2017). This puts digital technologies on par with steam power and electricity, but, unlike these previous GPTs, digitalization affects the flow and use of information rather than energy. This has implications for how the new technology affects innovation in the economy
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