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We analyze the link between R&D, innovation, and productivity in MSMEs with a special focus on micro firms with fewer than 10 employees; usually constituting the majority of firms in industrialized economies. Using the German KfW SME-panel, we examine to what extent micro firms are different from other firms in terms of innovativeness. We find that while firms engage in innovative activities with smaller probability, the smaller they are, for those firms that do make such investment, R&D intensity is larger the smaller firms are. For all MSMEs, the predicted R&D intensity is positively correlated with the probability of reporting innovation, with a larger effect size for product than for process innovations. Moreover, micro firms benefit in a comparable way from innovation processes as larger firms, as they are similarly able to increase their labor productivity. Overall, the link between R&D, innovation, and productivity in micro firms does not largely differ from their larger counterparts. (C) 2016 Elsevier B.V. All rights reserved.
A rich literature links knowledge inputs with innovative outputs. However, most of what is known is restricted to manufacturing. This paper analyzes whether the three aspects involving innovative activity - R&D; innovative output; and productivity - hold for knowledge intensive services. Combining the models of Crepon et al. (1998) and of Ackerberg et al. (2015), allows for causal interpretation of the relationship between innovation output and labor productivity. We find that knowledge intensive services benefit from innovation activities in the sense that these activities causally increase their labor productivity. Moreover, the firm size advantage found for manufacturing in previous studies nearly disappears for knowledge intensive services.
In the context of microfirms, this paper analyzes whether the link between the three aspects involving innovative activities—R&D, innovative output, and productivity—hold for knowledge-intensive services. With especially high start-up rates and the majority of employees in microfirms, knowledge-intensive services (KIS) have a starkly different profile from manufacturing. Results from our structural models indicate that KIS firms benefit from innovation activities through increased labor productivity with highly skilled employees being similarly important compared to R&D for creating innovation output in microfirms. Moreover, the firm size advantage of large firms found for manufacturing almost disappears in KIS, with start-ups and young firms having a higher probability of initiating innovation activities and of successfully turning knowledge into innovation output than mature firms.