Complementarities between product and process innovation and their effects on employment: a firm-level analysis of manufacturing firms in Colombia

The introduction or adoption of innovations at the firm level has consequences for job creation that may differ across low-middle and high-income countries. Also, the type of innovation that firms introduce, such as process or product innovations, can affect employment through different channels. This paper aims to study the effects of innovation on employment growth at the firm level using a framework that considers the nature of innovation and the relative efficiency of the firms. The study uses a rich panel dataset that combines information from two different surveys in Colombia: the Annual Manufacturing Survey and the Survey on Development and Technological Innovation in the Manufacturing Sector. The article provides empirical evidence supporting the idea that the nature of innovation in the country involves complementarities between process and product innovations. The paper discusses how this result is related to the patterns of innovation in middle income countries, which need not only new technologies but also imitation of processes and products. Another novelty of this analysis is the study of displacement effects of process innovation through improvements in the relative efficiency of the firms. Findings show that some firms reduce employment from process innovations, reflecting high heterogeneity in efficiency among firms.