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Innovation and Productivity in Services: A Methodological Approach

Author

Listed:
  • Luísa Ferreira Lopes

    (Departamento de Ciências Sociais Aplicadas, Faculdade de Ciências e Tecnologia, Universidade Nova de Lisboa, 2829-516 Caparica, Portugal2CEFAGE, Universidade de Évora, Largo dos Colegiais, 2, 7000-803 Évora, Portugal)

  • Manuel Mira Godinho

    (Instituto Superior de Economia e Gestão and UECE, Universidade Técnica de Lisboa, Rua Miguel Lupi, 20, 1200-725 Lisboa, Portugal)

Abstract

The purpose of this paper is to contribute to understanding innovation dynamics in services, in particular the link between innovation and productivity. A methodology to explain this link is suggested. Instead of establishing a single, direct connection between innovation and labor productivity, as in earlier approaches in the services literature, a simultaneous equations model is used. We put forward an extended version of the CDM (Crepon, Duguet and Mairesse) model, incorporating two feedback effects and using innovation activities rather than the more restrictive R&D proxy. Activities prior to the innovation implementation are also taken into account allowing for direct and indirect effects on labor productivity. Moreover, we discuss and handle the oftentimes overlooked methodological problems affecting this relationship. Micro data for ten service sectors in Portugal are used to estimate the model. The existence of a Schumpeterian virtuous cycle is confirmed, pointing to a mechanism reinforcing innovation investment returns. We find that innovation activities have a positive impact on labor productivity, but no evidence was found of a significant direct effect of innovation output. Labor productivity also improves with management capabilities. Relationships with customers, suppliers and cooperation partnerships significantly increase the probability of innovating, suggesting that stimulating organizational networking is a key element in a service firm’s innovation strategy.

Suggested Citation

  • Luísa Ferreira Lopes & Manuel Mira Godinho, 2019. "Innovation and Productivity in Services: A Methodological Approach," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 16(05), pages 1-26, August.
    • Handle: RePEc:wsi:ijitmx:v:16:y:2019:i:05:n:s0219877019500342
    DOI: 10.1142/S0219877019500342
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    References listed on IDEAS

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