On the Role of Knowledge Capital in Firm Performance: Empirical Evidence from Swedish Firms in the Engineering Industry

Abstract

The Industrial Organization literature has long been concerned about the discrepancy between the theoretical assumptions of equalization of profits among firms and the lack of empirical support. To sort out this contradiction, this paper defines a knowledge stock derived from investments in R & D, marketing, software and education which is modeled as an additional production factor. A unique IUI firm data set is used to demonstrate that the distribution of profitability among firms varies positively with investments in such knowledge capital.

Keywords: industrial organization, knowbedque capital, profitability