March 2019
Article
Management Science

Open Source Software and Firm Productivity

Format:Print

Abstract

As open source software (OSS) is increasingly used as a key input by firms, understanding its impact on productivity becomes critical. This study measures the firm-level productivity impact of nonpecuniary (free) OSS and finds a positive and significant value-added return for firms that have an ecosystem of complementary capabilities. There is no such impact for firms without this ecosystem of complements. Dynamic panel analysis, instrumental variables, and a variety of robustness checks are used to address measurement error concerns and to add support for a more causal interpretation of the results. For firms with an ecosystem of complements, a 1% increase in the use of nonpecuniary OSS leads to an increase in value-added productivity of between 0.002% and 0.008%. This effect is smaller for larger firms, and the results indicate that prior research underestimates the amount of IT firms use.