1 / 16

Is Investing in Innovation Unproductive?

Is Investing in Innovation Unproductive?. FRANCISCO VELOSO 1 PEDRO CONCEIÇÃO 2. 1 Faculdade de Ciências Económicas e Empresariais Universidade Católica Portuguesa 2 Center for Innovation, Technology and Policy Research Instituto Superior Técnico. Productivity and Innovation: Why de we care?.

rue
Télécharger la présentation

Is Investing in Innovation Unproductive?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Is Investing in Innovation Unproductive? FRANCISCO VELOSO1 PEDRO CONCEIÇÃO2 1Faculdade de Ciências Económicas e Empresariais Universidade Católica Portuguesa 2Center for Innovation, Technology and Policy Research Instituto Superior Técnico

  2. Productivity and Innovation: Why de we care? • Aggregate productivity is ultimately a measure of economic development • And there is the discussion of the productivity slowdown! • At firm level, it is an important measure of competitiveness • Limited understanding of the relationship!

  3. General Findings on Productivity • Wide dispersion in productivity levels across firms • Across firms in the same sector • Sharing similar type of producing technologies • Selling the same type of goods and services • This wide dispersion across firms is persistent over time • Entry and exit is are important sources of aggregate productivity growth • Productivity increases are not associated with employment reductions at the firm level

  4. Determinants of Productivity: What we know • Firms entering a sector exhibit lower levels, but higher growth rates of productivity than existing firms • Average level of human capital of the firm positively associated with productivity levels and growth rates • Process may be mediated by technology (or innovation) • Increasing international exposure (measured by exports) associated with higher productivity levels and growth rates • Management and ownership structure influences productivity • Although not much has been widely accepted as a determinant • Innovation is a key correlate of productivity – so far positive… • Although they are probably jointly determined • Limited understanding of this relationship!

  5. Hypothesis Firms make short-run decisions on resource allocation and tactical positioning that may be: • Devoted towards the “exploitation” of existing capacity to produce through full utilization and mobilization of resources • Including human and physical capital • Geared to “exploration” of new possibilities of production • Testing a new production layout based on recently acquired machinery, attempting to launch a new service or product, integrating a new person in research and development activities • Become, in the short-run, more productive • learning-by-doing dynamics that decrease unit costs as production increases. • Will not show evidence of innovation activities and outcomes • Show less productivity gains • More innovative activities and more innovation

  6. Novelties in our approach • Look at innovation in general, not only at the adoption of a specific technological innovation (such as computers) • Use information on firms that have attempted to innovate and on firms that have introduced innovations • Consider all innovations, not only at radical innovations that have merited a patent (or at least an application for a patent). • Relevant for countries such as Portugal - behind those countries that lead the technological frontier • Consider firms in both manufacturing and services

  7. The Data • Observations at the firm level that result from a survey performed in 1998 to a sample of Portuguese firms. • Representative sample of the population of the manufacturing sector and also representative of five selected service sectors • Survey performed by the Observatory of Sciences and Technologies, of the Ministry of Science and Technology • Part of the Portuguese participation in the European-wide survey known as Community Innovation Survey (CIS)

  8. The Variables: Innovation • Firm answer on whether it has introduced at least one product or process innovation in the 1995-1997 period • Firm answers yes or no • There is no information on significance of the innovation • No information if firm introduced only one or several innovations • If answer is no, firm asked if it has attempted to innovate • Firm answers yes or no • In the manufacturing sector, positive answers on introduction of innovation are asked to provide information on importance • Share of sales associated to innovations introduced

  9. The Variables: Productivity • Measure of labor productivity growth • Calculated as the change in the ratio of turnover over the number of workers from the end of 1995 to the end of 1997 … Better would be to use value added and hours worked but such information was not available

  10. The Model Dependent: • Labor Productivity Growth (log form) Independent • Inov: Innovation • Introduction of Innovation (0-1) • Investment in Innovation (0-1) • Share of sales associated with innovation (for manufacturing) • Exp: Share of Turnover devoted to Exports • NF: dummy indicating if firm created in the relevant period • GP: dummy indicating if firm is part of a larger group • S: Sector controls

  11. A Problem: Endogeneity Dependent: • Inov: Innovation • Introduction of Innovation (0-1) • Investment in Innovation (0-1) • Share of sales associated with innovation (for manufacturing) Independent: • Labor Productivity (log form) • Emp: Employment (size measured in log form) • GP: dummy indicating if firm is part of a larger group • S: Sector controls

  12. Results: 2SLS Estimation . *** Sig. at 1%; ** 5%; * 10%

  13. Exploitation vs. Exploration in the Long Run In the long-run: • Could observe a positive relationship between levels of innovation and levels of productivity • Best test would be a panel over time... • Settle for a Relation between Productivity Levels and Innovation

  14. 2SLS: Productivity Level as Dependent . *** Sig. at 1%; ** 5%; * 10%

  15. Conclusions • After correcting for endogeneity • Firms that have introduced innovations in the last couple of years growth less in labor productivity than those that did not innovate • Evidence for different model specifications • Valid for both manufacturing and services • Results confirm the hypothesis: investments in innovation are unproductive in the short run • Test on long run effects points to the short run characteristics of the observed phenomenon: • Firms that have introduced innovations in the last couple of years have higher levels of labor productivity

  16. Some Policy Implications • Firms may feel the short-term loss in productivity as a powerful disincentive to invest in innovation • If extreme can produce a “lock-in” of low innovation and low productivity growth • Portugal is certainly a case where such effects could be observed • Lack of aggregate productivity growth performance can, thus, be seen as a “collective action” problem • Individual decisions are rational, given the structure of incentives and the constraints faced by firms • Collective outcomes are underperformant

More Related