Measuring process innovation outputs and understanding their implications for firms and workers: Evidence from Pakistan

Abstract

New processes significantly affect firms and workers; however, due to a lack of quantitative metrics, our understanding of the measures, determinants, and impacts of new processes remains limited. Drawing on unique data from Pakistan, we analyze five different metrics of process innovation output: cost reduction, defect rate reduction, reduction in production cycle time, increase in production capacity, and improvement in product quality. We find that the breadth and depth of innovative capabilities, level of competition, and availability of market sources of knowledge are important inducers of process innovation, and that smaller firms are more likely to introduce new processes and are better able to transform them into higher output. All five process innovation outputs are associated with higher labor productivity and sales expansion; however, there is considerable heterogeneity in the size of these impacts. We did not find that adopting new processes led to lower employment.