Don't Stop Me Now: Barriers to innovation and firm productivity

This paper analyses the effect of financial, knowledge, demand, market structure and regulation barriers to innovation on firms’ economic performance. It contributes to the literature on barriers to innovation in a two-fold way. First, it disentangles the mediated effect of obstacles, via product, process and organisational innovation, on labour productivity. Second, it accounts for the differentiated effect that each of the barriers has on firms positioned along the productivity distribution. We do so by employing both quantile regression techniques and propensity score matching on the UK CIS panel 2002-2010 merged with the Business Structure database. While we find evidence that financial obstacles negatively affect productivity across the distribution, and are more pronounced for young rather than small firms, knowledge and regulatory obstacles mostly affect high productivity firms. Interestingly, the perceptions of market structure and demand obstacles are positively associated to productivity performance, confirming their “revealed” rather than “deterring” nature.