The Effects of Technological Innovation on Productivity: The Role of Firm level Managerial Capabilities

This research aims to explore how to foster synergy between technological innovation—such as automation and digital solutions—and the management capacity of companies in Estonia, with the goal of enhancing productivity growth. The study seeks to determine whether and how new technologies, including the application of artificial intelligence, affect the productivity gap between leading companies and those with lower innovation capacity. To address these questions, econometric analysis is conducted using data from various sources, including surveys on information technology, innovation, and automation investments in Estonian companies. A key focus of the research is the role of employees’ social skills and organizational capital in shaping management capacity. The analysis also considers organizational innovations, such as changes in business processes, external communication, work organization, and human resource management. One of the project's primary contributions is to differentiate the productivity effects of new technologies and company capabilities from the selection effect, where more productive companies are better equipped to invest in new technologies. The project further incorporates personal and focus group interviews to examine how management capacities are applied in the implementation of technological innovations, particularly digitalization and artificial intelligence, within Estonian companies. In addition, experimental study will investigate the potential for artificial intelligence implementation, while scenario building will provide a future-oriented perspective on how these developments might evolve. This study contributes to the scientific literature, supports evidence-based economic policy-making, and enhances public awareness and discourse on the interaction between technological innovation and management capacity in companies.