Firm Productivity and Type of Innovation: Evidence from the Community Innovation Survey 6

Having recognized the impact of innovation for the improvement of productivity in firms and for the growth of national economies, researchers have been exploring the innovation process and its underlying factors for over a decade now. Much of the empirical findings in this area have been based on national firm-level studies while research that encompasses several countries, particularly in transition economies, is still rare. This paper attempts to fill this gap by investigating the impact of innovation on firms’ productivity across a number of East and West European countries, using a structural model based on Crepon, Duguet and Mairesse (1998) and a firm-level dataset from the 2006 round of the Community Innovation Survey (CIS6). In contrast to previous studies that focused only on product innovation as the measure of innovation output, we distinguish between firms engaged in only one type of innovation activities (product or process) and those engaged in both types. The results of the investigation provide support for the relationship between different stages of the innovation process and confirm the impact of innovation output on productivity. In addition, we find differences in the productivity associated with the type of innovation activities undertaken.