Technological Capabilities, Institutions and Firm Productivity: A Multilevel Study

National framework conditions directly affect the productivity of firms, but also moderate returns on their technological efforts. Although this has long been recognised, there is a dearth of quantitative analyses that openly consider this hypothesis. Using a data set of 15 425 manufacturing firms in 32 developing countries, we investigate the impact of national institutions on firms’ total factor productivity with the help of multilevel modelling. The results indicate that technological infrastructure and educational system make a large difference, and also most significantly interact with firms’ technological capabilities. However, governance measures that are conventionally considered in the literature explain surprisingly little.