Abstract
The paper examines implications of endogenous growth theory on the relationship between innovation and firm productivity (productivity growth) by combining information on firm-level innovation (CIS) with accounting data for a large sample of Slovenian firms in the period 1996–2002. We employ several different estimation methods in order to control for the endogeneity of innovation and idiosyncratic firm characteristics. We find a significant and robust link between productivity levels and firm propensity to innovate, while the results on the link between innovation activity and productivity growth are not robust to different econometric approaches. Although OLS estimates indicate that successful innovation positively impacts productivity growth, further analysis reveals that these results are mainly driven by the exceptional performance of a specific group of services firms located in the fourth quintile with respect to size, productivity and R&D propensity measure. Estimates based on matching techniques, on the other hand, do not reveal any significant positive effects of innovation on productivity growth, regardless of the sectors, firm size and type of innovation.
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There is also group of studies that focus on the rate of return on R&D activity at the firm level. These include Mansfield (1980) and Link (1981, 1983) on the United States, Griliches and Mairesse (1983, 1984, 1990) on the United States, France, and Japan, Hall and Mairesse (1995) on France, and Cincera (1998) on the world.
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Mohnen et al. (2006) use a generalized tobit model together with a variation of the production accounting framework and include size, industry, ownership type, continuous R&D, cooperative R&D, R&D intensity, proximity to basic research, and perceived competition as independent variables.
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The share of innovative firms is shrinking in spite of the fact that total R&D expenditure is increasing.
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In addition to the above estimations, Damijan et al. (2006) also ran a separate estimation for product and process innovations. Results are almost identical for both types of innovation activity. There are only minor differences in estimation results in the sense that process innovations require a slightly larger firm size, while product innovations seem to be more pronounced in foreign owned firms and seem to give slightly higher return on public subsidies.
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We use both logarithm of research capital per employee and logarithm research investment per employee in the estimation. Construction of the research capital variable follows the approach suggested by CDM.
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There do not seem to be many theoretically convincing choices of variables that could serve to explain the choice to invest in R&D but not the magnitude of the investment, and vice versa.
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In the regressions presented here we do not discriminate between product and process innovations, but include both forms in the indicator variable. As a robustness check, we ran regressions on product and process innovation dummies individually and found no appreciable difference in the results.
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CDM estimate their two innovation equations with pseudo maximum likelihood and ordered probit, respectively.
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For more on asymptotic least squares, see CDM and Gourieroux and Monfort (1989).
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Note that we only show results for the first two years after the innovation has been introduced, while the results for productivity growth between the second and fourth years after the innovation was initially introduced are shown in the Appendix (Tables B1 and B2).
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Damijan, J.P., Kostevc, Č., Rojec, M. (2011). Innovation and Firms’ Productivity Growth in Slovenia: Sensitivity of Results to Sectoral Heterogeneity and to Estimation Method. In: Nijkamp, P., Siedschlag, I. (eds) Innovation, Growth and Competitiveness. Advances in Spatial Science. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14965-8_8
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