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The link between firm-level innovation and aggregate productivity growth: a cross-country examination


  • Heshmati, Almas
  • Lööf, Hans


This paper investigates whether failure in innovation at the firm level can account for cross-country heterogeneity in manufacturing productivity growth. There is no strong evidence in the literature on the existence of such link. Our work, however, differs in a number of ways from much of the previous cross-country comparisons on the relationship between innovation and productivity using firm-level data. First, a broader definition of innovation input is used in which research and development is one of several sources of innovation. Second, a quantitative innovation output measure is used in the analysis. Third, the analysis is based on larger and more representative samples of firms including small firms. Finally, an econometric framework based on the knowledge production function accounting for both selectivity and simultaneity bias is employed. The results from Nordic countries show that given difficulties in pooling the data, it is important to specify country-specific models accounting for country-specific effects and differences in the countries national innovation systems.

Suggested Citation

  • Heshmati, Almas & Lööf, Hans, 2003. "The link between firm-level innovation and aggregate productivity growth: a cross-country examination," ZEW Discussion Papers 03-07, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:907

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    References listed on IDEAS

    1. Pierre Mohnen & Jacques Mairesse & Marcel Dagenais, 2006. "Innovativity: A comparison across seven European countries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 391-413.
    2. Zvi Griliches, 1998. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 157-186 National Bureau of Economic Research, Inc.
    3. John F. Helliwell, 1996. "Economic Growth and Social Capital in Asia," NBER Working Papers 5470, National Bureau of Economic Research, Inc.
    4. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    5. Hans Loof & Almas Heshmati, 2006. "On the relationship between innovation and performance: A sensitivity analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 317-344.
    6. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
    7. C.J. Krizan & John Haltiwanger & Lucia Foster, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," Working Papers 02-18, Center for Economic Studies, U.S. Census Bureau.
    8. John Haltiwanger, 2000. "Aggregate Growth: What Have We Learned from Microeconomic Evidence?," OECD Economics Department Working Papers 267, OECD Publishing.
    9. Loof, Hans & Heshmati, Almas, 2002. "Knowledge capital and performance heterogeneity: : A firm-level innovation study," International Journal of Production Economics, Elsevier, vol. 76(1), pages 61-85, March.
    10. Jacques Mairesse & Philippe Cunéo, 1985. "Recherche-développement et performances des entreprises : une étude économétrique sur données individuelles," Revue Économique, Programme National Persée, vol. 36(5), pages 1001-1042.
    11. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
    12. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    13. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
    14. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-980, September.
    15. Keefer, Philip & Knack, Stephen, 1997. "Why Don't Poor Countries Catch Up? A Cross-National Test of Institutional Explanation," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 590-602, July.
    16. Ariel Pakes & Zvi Griliches, 1980. "Patents and R and D at the Firm Level: A First Look," NBER Working Papers 0561, National Bureau of Economic Research, Inc.
    17. repec:crs:wpaper:9730 is not listed on IDEAS
    18. repec:fth:harver:1487 is not listed on IDEAS
    19. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Subal Kumbhakar & Raquel Ortega-Argilés & Lesley Potters & Marco Vivarelli & Peter Voigt, 2012. "Corporate R&D and firm efficiency: evidence from Europe’s top R&D investors," Journal of Productivity Analysis, Springer, vol. 37(2), pages 125-140, April.
    2. Gerard Ballot & Fathi Fakhfakh & Fabrice Gallia & Ammon Salter, 2011. "The Fateful Triangle Complementarities between product, process and organizational innovation in the UK and France," TEPP Working Paper 2011-05, TEPP.
    3. Raquel Ortega-Argilés & Lesley Potters & Marco Vivarelli, 2011. "R&D and productivity: testing sectoral peculiarities using micro data," Empirical Economics, Springer, vol. 41(3), pages 817-839, December.
    4. repec:prg:jnlpep:v:2013:y:2013:i:4:id:436:p:487-503 is not listed on IDEAS
    5. Alena Zemplinerová & Eva Hromádková, 2012. "Determinants of Firm´s Innovation," Prague Economic Papers, University of Economics, Prague, vol. 2012(4), pages 487-503.
    6. repec:pid:journl:v:55:y:2016:i:4:p:705-714 is not listed on IDEAS
    7. Michele Cincera & Claudio Cozza & Alexander Tübke, 2014. "Main drivers for local and global R&D sourcing of European Multinational Enterprises," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 4(2), pages 227-245, December.

    More about this item


    community innovation; cross-country comparisons; manufacturing; productivity;

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity


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