Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1347: Software Development and Innovation ‒ Exploring the Software Shift in Innovation in Swedish Firms

Martin Andersson (), Anna Kusetogullari () and Joakim Wernberg ()
Additional contact information
Martin Andersson: Department of Industrial Economics Blekinge Institute of Technology (BTH), Postal: Lund University, the Swedish Entrepreneurship Forum and Research Institute of Industrial Economics (IFN),
Anna Kusetogullari: Department of Industrial Economics Blekinge Institute of Technology (BTH)
Joakim Wernberg: Swedish Entrepreneurship Forum

Abstract: Several scholars as well as industry professionals have claimed that there is a “software-biased 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.

Keywords: Innovation; Software; Software development; Digitalization; Human capital; Software bias; Digital technology; Absorptive capacity

JEL-codes: L25; O15; O32; O33; O43

33 pages, June 30, 2020

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