Abstract
While the importance of innovation as a primary source of economic growth has never been in dispute, its impact on employment has remained indeterminate. On one hand, the pessimists indicate that firm innovation destroys jobs because of the immediate indirect labour-saving nature of the effect of innovation, while the optimists argue that there are several compensation mechanisms that are known to counterbalance the initial effect of innovation and render the final effect indeterminate. Using data on a panel of 421 firms in Ghana, the paper investigates the relationship between innovation introduced at the firm level and employment. Relying on the panel fixed effects and Hausman-Taylor estimation techniques, this study finds a robust statistically significant positive impact of product innovation on employment but not for process innovation. In terms of policy relevance, this finding reemphasizes the need for policy makers in Ghana to intensity efforts in promoting technology diffusion particularly through FDI. This study thus contributes to the literature on innovation in Africa by providing evidence on why technological innovation in the form of product innovation can be a panacea to alleviating employment challenges in Ghana.
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Notes
van Reenen (1997) finds overall positive effects of indicators of innovation on the quantity of employment after controlling for firm level characteristics in his study of UK firms.
The instruments used include (a) deviations from group means of the time-varying exogenous variables, (b) deviations from group means of the time-varying endogenous variables, (c) means of the time-varying exogenous variables and (d) the time invariant variables. The first two serve as instruments of the time varying endogenous variables and the last two for the time-invariant endogenous variables (see Dixit and Pal 2010).
An innovating firm is one that innovated at least once between 2013 and 2015
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Baffour, P.T., Ebo Turkson, F., Gyeke-Dako, A. et al. Innovation and employment in manufacturing and service firms in Ghana. Small Bus Econ 54, 1153–1164 (2020). https://doi.org/10.1007/s11187-018-0120-7
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DOI: https://doi.org/10.1007/s11187-018-0120-7