Evaluating the Effects of Product Innovation on the Performance of European Firms by Using the Generalised Propensity Score

The relationship between product innovation intensities and the performance of European firms is assessed, assuming that the selection into different intensities is based on a set of observed covariates. Most studies only distinguish between the innovating and non†innovating status of firms within a binary treatment framework. Instead, we use a generalised propensity score to estimate a dose–response function, which connects the product innovation intensities of the firms to their labour productivity and profitability growth rates, as measures of performance. The results indicate that high levels of product innovation intensity have significant positive effects on the profitability rate, whilst no significant effects are found on productivity rate.