Technology Extension Services, Intangible Capital, and SME Productivity before and during the COVID-19 Pandemic

This study investigates the impact of Technology Extension Services (TES) on the productivity of small and medium-sized enterprises (SMEs) in Japan, using an Endogenous Switching Regression model and firm-level panel data covering both the pre-pandemic (2016–2019) and pandemic (2020–2023) periods. Focusing on Kohsetsushi, Japan’s extensive network of public support institutes for SMEs, the analysis finds that TES adoption significantly improves firm productivity across both periods, highlighting its role as a locally embedded innovation intermediary. Firms with higher levels of intangible capital benefited more, with complementary effects particularly pronounced during the pandemic—suggesting that absorptive capacity became critical under crisis conditions. Selection estimates reveal that more productive firms were more likely to adopt TES, although some equally capable firms opted out—consistent with comparative advantage shaping self-selection patterns. Geographic proximity to service providers constrained TES access in stable periods but became less critical during the pandemic due to the expansion of digital service delivery. These findings underscore how firm capabilities, external shocks, and spatial access jointly influence the effectiveness of public technology support programs.