This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

This paper compares the role innovation plays in productivity across the four European countries France, Germany, Spain and the UK using firm-level data from the internationally harmonized Community Innovation Surveys (CIS3). Despite a considerable number of national firm-level studies analysing this relationship, crosscountry comparisons using micro data are still rare. We apply a structural model that describes the link between R&D expenditure, innovation output and productivity (CDM model). Our econometric results suggest that overall the systems driving innovation and productivity are remarkably similar across these four countries, although we also find interesting differences, particularly in the variation in productivity that is associated with more or less innovative activities.

This paper compares the role innovation plays in productivity across the four European countries France, Germany, Spain and the UK using firm-level data from the internationally harmonized Community Innovation Surveys (CIS3). Despite a considerable number of national firm-level studies analysing this relationship, crosscountry comparisons using micro data are still rare. We apply a structural model that describes the link between R&D expenditure, innovation output and productivity (CDM model). Our econometric results suggest that overall the systems driving innovation and productivity are remarkably similar across these four countries, although we also find interesting differences, particularly in the variation in productivity that is associated with more or less innovative activities.

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0581.pdf Non-technical SummaryInnovation is widely considered to be a key long-term driving force for economic growth. In 1993, the Community Innovation Surveys (CIS) were initiated in the European countries to investigate firms' innovation activities. However, there is still very little empirical evidence on the dynamics in firms' innovation behaviour. Looking at innovation indicators at the aggregate or industry level, we can identify a high and quite stable share of innovators in Germany over the last ten years. One interesting question, however, cannot be answered by such macroeconomic numbers: Is it the same group of firms that always set themselves at the cutting edge by introducing new products and processes or is there a steady entry into and exit from innovation activities at the firm level, with the aggregate level remaining more or less stable over time?This paper analyses the dynamics in firms' innovation behaviour. In particular, it focuses on the following two questions: First of all, is innovation persistent at the firm-level? And secondly, if persistence is prevalent, what drives this phenomenon? In principle, there are various potential sources for persistent behaviour: First, it might be caused by true state dependence. This means that a causal effect exists in the sense that the decision to innovate in one period itself enhances the probability of innovating in the subsequent period. The theoretical literature delivers several potential explanations for state dependent behaviour: success breeds success, dynamic increasing returns (learning effects) or sunk costs in R&D investments. On the other hand, firms may possess certain characteristics which make them more likely to innovate. To the extent that these characteristics themselves show persistence over time, they will induce persistence in innovation behaviour. Such firm-specific attributes can be classified into observable characteristics, like firm size, competitive environment, skills or financial resources, and unobservable ones. For instance, technological opportunities, managerial abilities or risk attitudes are important for the firms' decision to innovate, but are typically not observed (unobserved heterogeneity).The answers to both questions are important from a theoretical as well as a policy point of view. From a theoretical point of view they are interesting because endogenous growth models differ in their underlying assumptions about the innovation...

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp09081.pdf Non-technical SummaryEconomic theory suggests that nancing constraints may occur due to capital market imperfections. These particularly aect investments in innovation projects as such projects are typically characterized by a high degree of uncertainty, complexity and specicity.Financing innovation externally is thus likely to be more costly compared to nancing of other investment. Hence, internal sources of nancing are crucial for the implementation of innovation projects. However, internal funds are not inexhaustible either. , then the rm must have had some unexploited investment opportunities that were not protable using more costly external nance'. That is, these rms have been nancially constrained. This study contributes to the literature in the following three main aspects. First, we employ a direct indicator derived from survey information in which rms were oered a hypothetical cash payment. Second, we account for the rm's choice between alternatives of use for the money. Third, we introduce the concept of innovative capability and how it aects nancing constraints for innovation.The results from our econometric analysis show that nancial constraints for innovation do not depend on the availability of funds per se, but are driven by innovative capability through increasing resource requirements. That is, rms with high innovative capability but low nancial resources are more likely constrained than others. Yet, we also observe constraints for nancially sound rms that may have to put some of their ideas on the shelf. Firms with low innovative capability choose other options, such as investment in physical capital. Taking account of all options for usage of the additional money, we further nd in contrast to the innovation decision, the decision to serve debt is to a large extent driven by the nancial background. Firms with low internal funds or a bad credit rating would primarily repay debt instead of investing additional cash in innovation projects. Abstract: This study presents a novel empirical approach to identify nancing constraints for innovation based on the idea of an ideal test as suggested by Hall (2008). Firms were oered a hypothetical payment and were asked to choose between alternatives of use. If they choose additional innovation projects they must have had some unexploited investment opportunities that were not protable using more costly external...

This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

Recent studies have documented extensive heterogeneity in firm performance within countries, and innovation has been found as an important determinant. This paper addresses the issue of innovation firm performance across countries. A growing number of national firm level studies on the innovation-productivity link have been conducted using new internationally harmonized survey data, known in Europe as Community Innovation Survey (CIS). Mainly due to confidentiality reasons crosscountry comparisons of CIS data are still rare. The contribution of this paper is its unique approach of pooling original firm observations from Germany and Sweden. Applying a knowledge production function that gives the relationship between innovation input, innovation output and productivity, we find to a very large extent a common cross-country story for knowledge intensive manufacturing firms. Some interesting country-specific effects are reported as well.QC 2012022