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National framework conditions mediate the effect of technological capabilities of firms on their productivity. Although this has been recognized in the literature for a long time, a quantitative test that explicitly considers this hypothesis has been lacking. Using a World Bank datasets of about 19,000 firms in 42 countries, most of which are developing, the authors estimate a multilevel production function with effects of firm's technological capabilities nested in the national framework conditions. The results confirm that various facets of firm's technological capabilities and national economic, technological and institutional conditions influence total factor productivity of firms.
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