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On the contribution of innovation to multi-factor productivity growth

Author

Listed:
  • George Van Leeuwen
  • Luuk Klomp

Abstract

We embed the innovation production function in a model that analyzes the impact of innovation output on manufacturing multi-factor productivity (MFP) growth. We combine a market share model with a gross output production function. This revenue approach enables a 'demand-shift' interpretation of the contribution of innovation to MFP growth. We apply different sets of instrumental variables and different estimation methods to estimate simultaneously the returns from innovation investment to innovation output, the contribution of innovation output to productivity growth and the feedback link running from a firm's overall sales performance to its innovation endeavor. We draw our empirical results from the second Community Innovation Survey (CIS-2) for the Netherlands. The estimation results from our model show that the impact of innovation differs between measures of firm performance, and that, in our data, the revenue function approach yields more sensible results for the contribution of innovation to MFP growth than the value-added production function framework. Furthermore, the results show that the estimation of return on innovation investment benefits from the inclusion of more information on the technological environment of the firm.

Suggested Citation

  • George Van Leeuwen & Luuk Klomp, 2006. "On the contribution of innovation to multi-factor productivity growth," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 367-390.
  • Handle: RePEc:taf:ecinnt:v:15:y:2006:i:4-5:p:367-390
    DOI: 10.1080/10438590500512927
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    References listed on IDEAS

    as
    1. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    2. Veugelers, Reinhilde & Cassiman, Bruno, 1999. "Make and buy in innovation strategies: evidence from Belgian manufacturing firms," Research Policy, Elsevier, vol. 28(1), pages 63-80, January.
    3. Zvi Griliches, 1984. "R&D, Patents, and Productivity," NBER Books, National Bureau of Economic Research, Inc, number gril84-1, April.
    4. Stephane Lhuillery, 2006. "Voluntary technological disclosure as an efficient knowledge management device: An empirical study," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 465-491.
    5. Klette, Tor Jakob & Griliches, Zvi, 1996. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Endogenous," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 343-361, July-Aug..
    6. repec:cmi:wpaper:cemi-report-2005-003 is not listed on IDEAS
    7. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-951, July.
    8. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
    9. repec:crs:wpaper:9730 is not listed on IDEAS
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