INTRODUCTION

Innovation-driven growth has long been understood as a restless, uneven process. In the Schumpeterian tradition – captured formally by Aghion and Howitt’s model of creative destruction – economies progress when new, higher-quality technologies displace older ones, pushing the productivity frontier outward. This dynamic vision of growth, which underpins modern endogenous growth theory and its Nobel-recognized contributions, emphasizes that long-run prosperity depends less on accumulating more inputs and more on the continual renewal of ideas, products, and organizational practices. Competition sits at the core of this mechanism. Rivalry pushes firms to innovate in order to “escape competition,” yet the same innovative breakthroughs can give temporary market power that incumbents may later use to shield themselves from future challengers. Whether an economy remains innovative and adaptive – or becomes sclerotic and entrenched – depends on how these forces balance over time.

Against this conceptual backdrop, Georgia’s industrial landscape offers a rich setting. Over the past decade, some sectors have moved rapidly up the productivity frontier, others have fallen behind, and in many cases the distance between leaders and followers has widened. Innovation activity has shifted from broad and energetic in the mid-2010s to sharply constrained during the pandemic, with only partial recovery afterward. Meanwhile, market concentration has tightened in some industries and fragmented in others. Putting these patterns together is essential for understanding which parts of the economy are experiencing Schumpeterian renewal and which risk stagnation.

To trace these dynamics, the research note adopts descriptive approach based on firm-level microdata at the NACE Rev. 2 three-digit level. For each sector–year, the productivity frontier is defined as the 90th percentile of labor productivity, the median anchors the core of the distribution, and the average log distance to the frontier summarizes how far the typical firm sits below sectoral leaders. Innovation activity is captured across four dimensions – product, process, organizational, and marketing changes – using survey-weighted shares of firms, alongside an “any innovation” indicator that summarizes the breadth of experimentation. Market structure is proxied by the Herfindahl–Hirschman Index (HHI) computed from turnover shares, and where useful, sectoral labor productivity is represented as bubble size to signal economic weight in cross-sectional figures.

The objective is not to estimate causal effects, but to assemble stylized facts about how productivity, innovation, and competition interact across Georgian industries. Through an Aghion – Howitt lens, movements in the frontier highlight genuine technological or organizational upgrading; shifts in the median and distance-to-frontier measures reveal whether diffusion and catch-up occur; innovation incidence reflects the scope and depth of firms’ experimentation; and concentration helps distinguish dynamic rivalry from the entrenchment of incumbents.

For the complete paper, please refer to the attached research note (above).