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Product and Process Innovation: Determinants and Dynamic Effects on Firm Growth

Author

Listed:
  • Yojiro Ito

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: youjirou.itou@boj.or.jp))

  • Harumasa Shirakawa

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: harumasa.shirakawa@boj.or.jp))

Abstract

The invention of new goods or services, called product innovation, and improvements in production processes, called process innovation, can have distinct impacts on firm performance. By integrating firm-level innovation survey data with financial panel data in Japan, our empirical analysis yields two key findings. First, the increasing prevalence of process innovation over product innovation has been observed over the past two decades. Second, higher market growth stimulates product innovation, which, in turn, contributes to growth in firm sales and employment over several years. In contrast, no such patterns are observed for process innovation. These results suggest that there may be a positive feedback loop between product innovation and firm growth.

Suggested Citation

  • Yojiro Ito & Harumasa Shirakawa, 2025. "Product and Process Innovation: Determinants and Dynamic Effects on Firm Growth," IMES Discussion Paper Series 25-E-18, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:25-e-18
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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