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The Impact of innovation activities on firm performance using a multi-stage model: evidence from the Community Innovation Survey 4

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  • Iraj Hashi
  • Nebojsa Stojcic

Abstract

The impact of innovation on firm performance has been a matter of significant interest to economists and policy makers for decades. Although innovation is generally regarded as a means of improving the competitiveness of firms and their performance on domestic and foreign markets, this relationship has not been supported unambiguously by empirical work. Innovative activities of firms influence their performance not necessarily directly but through the production of useful innovations and increased productivity. Therefore, in recent years, the relationship between innovation and firm performance has been modelled by a multistage approach. However, the findings from existing studies differ in many respects which suggests that there is the need for further research. In this paper we employ firm level data from the fourth Community Innovation Survey (CIS4), covering some 90,000 firms in 16 West and East European countries in order to assess the drivers of the innovation process in two different institutional settings, a number of mature market economies of Western Europe and a number of advanced transition economies from Central and Eastern Europe. A four-equation model, originating in the work of Crepon et al., (1998), has been used to link the innovation decision of firms to their performance through the impact of innovation input on innovation output and the innovation output on productivity and better performance. Our findings confirm the positive relationship between innovation activities and productivity at the firm level and provide further evidence on the relationship between size and innovation activities.

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Bibliographic Info

Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 410.

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Length: 40 Pages
Date of creation: 2010
Date of revision:
Handle: RePEc:sec:cnstan:0410

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Keywords: innovation; firm performance; multi-stage model; Community Innovation Survey 4;

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  1. Gene M. Grossman & Elhanan Helpman, 1993. "Endogenous Innovation in the Theory of Growth," NBER Working Papers 4527, National Bureau of Economic Research, Inc.
  2. Tor Jakob Klette & Zvi Griliches, 1997. "Empirical Patterns of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation," Discussion Papers 188, Research Department of Statistics Norway.
  3. Lööf, Hans & Heshmati, Almas & Asplund, Rita & Nåås, Svein-Olav, 2001. "Innovation and Performance in Manufacturing Industries: A Comparison of the Nordic Countries," Working Paper Series in Economics and Finance 0457, Stockholm School of Economics.
  4. Wakelin, Katharine, 1998. "Innovation and export behaviour at the firm level," Research Policy, Elsevier, vol. 26(7-8), pages 829-841, April.
  5. Paul Romer, 1991. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  6. Acs, Zoltan J & Audretsch, David B, 1987. "Innovation, Market Structure, and Firm Size," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 567-74, November.
  7. Julio Raffo & Stephane Lhuillery & Luis Miotti, 2008. "Northern and southern innovativity: a comparison across European and Latin American countries," European Journal of Development Research, Taylor and Francis Journals, vol. 20(2), pages 219-239.
  8. Zvi Griliches, 1998. "Productivity, R&D, and Basic Research at the Firm Level in the 1970s," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 82-99 National Bureau of Economic Research, Inc.
  9. Chudnovsky, Daniel & Lopez, Andres & Pupato, German, 2006. "Innovation and productivity in developing countries: A study of Argentine manufacturing firms' behavior (1992-2001)," Research Policy, Elsevier, vol. 35(2), pages 266-288, March.
  10. Domadenik, Polona & Prašnikar, Janez & Svejnar, Jan, 2007. "How to Increase R&D in Transition Economies? Evidence from Slovenia," IZA Discussion Papers 2801, Institute for the Study of Labor (IZA).
  11. Griliches, Zvi, 1986. "Productivity, R&D, and the Basic Research at the Firm Level in the 1970's," American Economic Review, American Economic Association, vol. 76(1), pages 141-54, March.
  12. Luuk Klomp & George Van Leeuwen, 2001. "Linking Innovation and Firm Performance: A New Approach," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(3), pages 343-364.
  13. Lööf, Hans & Heshmati, Almas, 2001. "On the Relationship between Innovation and Performance: A sensitivity Analysis," Working Paper Series in Economics and Finance 0446, Stockholm School of Economics, revised 01 Oct 2001.
  14. Brouwer, Erik & Kleinknecht, Alfred, 1999. "Innovative output, and a firm's propensity to patent.: An exploration of CIS micro data," Research Policy, Elsevier, vol. 28(6), pages 615-624, August.
  15. Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, vol. 112(478), pages C97-C116, March.
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Cited by:
  1. Iraj Hashi & Nebojša Stojčić, 2013. "Knowledge Spillovers, Innovation Activities, And Competitiveness Of Industries In Eu Member And Candidate Countries," Economic Annals, Faculty of Economics, University of Belgrade, vol. 58(198), pages 7-34, July - Se.
  2. Alena Zemplinerová & Eva Hromádková, 2012. "Determinants of Firm´s Innovation," Prague Economic Papers, University of Economics, Prague, vol. 2012(4), pages 487-503.
  3. repec:prg:jnlpep:v:2013:y:2013:i:4:id:436:p:487-503 is not listed on IDEAS

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