In the paper which forms the basis of this talk, Dr Mathew develops and applies a novel methodology for quantifying the capability development of firms, and putting these capabilities (and hence also the firms) in a hierarchy, that she refers to as their position on the capabilities ladder.

The 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. Balance sheet and innovation data is analysed 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. It is found that capability ranking can explain future growth patterns and survival probability of firms, summing up in one number their future potential trajectories.

This event is organised by the Institute for New Economic Thinking at the Oxford Martin School.

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Dr Nandita Mathew
Researcher, United Nations University, Maastricht, Netherlands

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).

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