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This paper analyzes the effect of learning by doing (LBD) on the firm’s productivity growth and its input demand decisions. The results indicate that LBD is an important determinant of the firm’s productivity growth. The contribution of LBD to the firm’s productivity growth is about 5.6%. Another observation is that LBD has a decreasing effect on the firm’s cost of production – a finding which is consistent with the results of many studies. Also, an increase in LBD measured by cumulative production increases the firm’s demand for capital, and decreases the firm’s demand for labor. Lastly, LBD has a significant effect on the firm’s elasticity of scale. A fundamental message derived from the study is the confirmation that the firms should invest in more large capital equipment, embark on new processing techniques, and create an environment that is conducive to on-the-job learning.
