Nanditha Mathew: Positioning firms along the capabilities ladder

We develop and apply a novel methodology for quantifying the capability development of firms, and putting these capabilities (and hence also the firms) in a hierarchy, that we refer to as their position on the capabilities ladder. Our nestedness algorithm, inspired by biology and network science, defines a capability as complex if it is performed by only a few firms at the upper rungs of the ladder. We analyze balance sheet and innovation data of almost 40,000 Indian firms for the time period 1988-2015, and observe significant nestedness. Lower rungs of the capabilities ladder correspond to basic managerial and production capabilities. Mid-level rungs correspond to internationalization and acquiring absorptive capacity. Higher level rungs are more related to M&A and innovation. ICT capabilities have become more fundamental lower-level rungs on the capabilities ladder in recent years. We find that capability ranking can explain future growth patterns and survival probability of firms, summing up in one number their future potential trajectories.

About the speaker

Nanditha Mathew is a Researcher at United Nations University (Maastricht, Netherlands), with research interests focused broadly on the microeconomics of innovation and development and, in detail, on firm capabilities, firm performance and industrial policy. Nanditha is leading the team on "Conflicting and complementary policies for development" within the new flagship programme of UNU-MERIT on Comprehensive Innovation for Sustainable Development (CI4SD).