Link between innovation and productivity in Canadian manufacturing industries

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Abstract:

Empirical studies commonly use research and development (R&D) to measure innovation and often find, especially in Canada, no strong link between productivity and innovation. In this article, we model innovation as an unobservable latent variable that underlies four indicators: R&D, patents, technology adoption, and skills. We find that these indicators are reasonably good measures of innovation for aggregate manufacturing. However, except for skills, the reliability of the indicators for innovation differs among individual industries. Our innovation indexes, based on the latent variable model, show that most manufacturing industries became more innovative over the 1980-1997 period. The pace of innovation in the electrical and electronic products industry accelerated during the 1990s. In addition, we show that the new measure of innovation has a positive and statistically significant impact on productivity. It takes from 1 to 3 years, depending on the industry, for innovation to generate an impact on productivity.*

Tel.: +1 613 951 0754; E-mail: wulong.gu@statcan.ca

Keywords: Innovation; Productivity

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/1043890410001686806

Affiliations: 1: Statistics Canada R.H. Coats Building Ottawa Ontario Canada K1A 0T6 2: Industry Canada 235 Queen Street Ottawa Ontario Canada K1A 0H5

Publication date: October 1, 2004

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