Productivity, Demand and Innovation

Forskningsenhed: CEBR

The overall objective of this project is to improve our understanding of productivity effects of different types of innovation. Especially, we want to estimate the separate productivity effects of product and process innovation on firm productivity. Innovation will impact the demand – through product innovation – and productivity – through process innovation. The innovation elasticity will therefore be a combination of output elasticity and price elasticity (see Hall et al., 2010, and Hall, 2011). Prior research did not identify these two effects separately because of lack of data on individual firm prices. However, using the data from Statistics Denmark on international trade and domestic sales, we will be able to measure the separate influences of innovation on prices – measured by unit values – and output. According to our knowledge it is the first time that an empirical study of innovation and unit values of firm sales has been carried out. The question of the productivity effects of different types of innovation is not only of theoretical interest but will also have profound implications for public policy. This holds for measures directed towards individual firms’ innovation (to what extent do process and product innovation enhance firms productivity or revenue?) and for policy measures directed towards innovative firms (what type of innovations should governments subsidize?)

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