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Measuring the Prevalence and Direction of Innovation: A Pilot Approach using LLMs

Author

Listed:
  • Garg, Prashant

    (Bocconi University)

  • Lambert, Peter John

    (University of Warwick & London School of Economics)

  • Martin, Ralf

    (Imperial College London, Centre for Economic Performance and CEPR)

  • Medvedev, Denis

    (World Bank)

Abstract

This paper pilots a method for measuring firms' product and process innovation at scale. Our approach uses LLMs to complete a detailed innovation survey for a sample of 600,000 companies operating across 40 countries. The preliminary results contain 6 million individual instances of innovative activity along with rich textual descriptions. These responses carry signal, for example a one-standard-deviation increase in a firm's product innovation index is associated with a 5% higher measured TFP residual. The data reveal that innovation is widespread: two-fifths of companies engage in product innovation and one-quarter in process innovation, far exceeding the share of patenting firms. Firms are more likely to have labor-augmenting than labor-saving introductions, while about 14% have green product in novation and 12% have green process innovation. Greenness and net labor augmentation are positively associated across countries. Beyond our specific application, this paper illustrates the potential for using LLMs to generate survey-level insights at population scale.

Suggested Citation

  • Garg, Prashant & Lambert, Peter John & Martin, Ralf & Medvedev, Denis, 2026. "Measuring the Prevalence and Direction of Innovation: A Pilot Approach using LLMs," CAGE Online Working Paper Series 825, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:825
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/wp825.2026.pdf
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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