The link between product and process innovations and productivity for Colombian manufacturing

This paper investigates the impact of two innovating strategies (product and process) on total factor productivity (TFP) growth and the dynamic linkages between these strategies, for Colombia. In a first stage, we explore through panel data discrete choice models whether the ex-ante more productive firms are those that introduce innovations. In a second stage, we test whether the introduction of innovations boosts productivity growth. In this second stage, we use matching techniques. In a final stage, we explore the firm’s joint decision to innovate in process and/or product through a bivariate probit model. Data from the Annual Manufacturing Survey and the Technological Development and Innovation Survey, for 2007-2016, are used for Colombian manufacturing firms. Our results suggest that the most productive firms self- select into the introduction of innovations (both process and product). Further, these innovations render positive returns in terms of productivity growth only one period forward regardless of the type of innovation. In addition, we also find a strong persistence of process and product innovation over time, and cross effects between these two strategies, as product innovations are boosted by process innovation and vice versa.