Date Added: Nov 2009
Many empirical studies have confirmed the positive impact of innovation on productivity at the firm level. The focus tends to be either on R&D driven technological innovation on the one hand, or on organisational changes complemented by ICT on the other. To investigate the effect of different types of innovations on productivity, the authors propose a model with two innovation input equations (R&D and ICT) that feed into a knowledge production function consisting of a system of three innovation output equations (product innovation, process innovation and organisational innovation), which ultimately feeds into a productivity equation. They find that ICT is an important driver of innovation in both manufacturing and services. Doing more R&D has a positive effect on product innovation in manufacturing.