Innovation dynamics and productivity: Evidence for Latin America
Gustavo A. Crespi, Ezequiel Tacsir & Fernando Vargas
#2014-092
Innovation is fundamental for economic catching-up and raising living
standards. Evidence demonstrate a virtuous circle in which R&D spending,
innovation, productivity, and per capita income mutually reinforce each
other and lead to long-term, sustained growth rates and may foster job
creation. Previous evidence highlights that Latin America and the
Caribbean (LAC) has great potential to benefit from investment and
policies that foster innovation. However, one important limitation of
previous research on innovation in LAC is the absence of harmonised and
comparable indicators across the different countries. This seriously
limits the possibility to infer policy conclusions that are not affected
by country specificities with respect to data quality and coverage.
Also, most of this research is focused on estimating firm level
correlations without attempting to identify market failures or other
limitations which harm innovation investment or which could guide
policy. In this paper, a wide range of innovation indicators are
analysed in order to describe the innovation behaviour of manufacturing
firms in LAC using the Enterprise Survey (ES) database. Our objective is
to understand the main characteristics of innovative firms in LAC and to
gather new evidence with regard to the nature of the innovation process
in the region. In this paper we apply a structural model based on
Crepon, Duget and Mairesse (1998), to estimate the determinants of
innovation (R&D) and its impact on total factor productivity. We pay
special attention to whether there is heterogeneity in the effects of
investments in innovation on productivity and whether there is any
evidence of spillovers that could guide policy design. We found strong
evidence concerning the relationships between innovation input and
output, and innovation output and productivity. We found that private
returns to innovation depend on the type of innovation, being larger for
product than process innovation. Furthermore, we found some evidence
that spillovers are stronger in the case of product than process
innovation. It was also found that innovation returns are higher for the
most productive firms. This increasing relationship between returns and
productivity is not consistent with an interpretation that financial
constraints cause more harm to low productivity firms. However, it is
consistent with alternative interpretations about the lack of innovation
opportunities in the case of low productivity firms or that low private
returns are the results of poor appropriability.
Keywords: Innovation, productivity, developing countries, Latin America,
innovation surveys
JEL Classification: O12, O14, O31, O33, 040