Innovation and Productivity in Services and Manufacturing: The Role of ICT Investment

Several studies have highlighted information and communications technology (ICT) as a driver of firm productivity in developed countries. However, evidence of the impacts of ICT on services and manufacturing, particularly in developing countries, is scarce. This paper analyzes the determinants of investment in ICT at the firm level and how investments in ICT ultimately affect innovation and productivity in Uruguayan service firms compared to manufacturing firms. The results show that investments in ICT are subject to economies of scale to a greater degree than other types of investments. They are also important for product or process innovations in the service sector. The absence of investment in ICT conspires against non-technological (e.g., organizational or marketing) innovations. ICT and other innovation investments are positively associated with productivity in services, but only ICT affects productivity in manufacturing. The absence of investment in ICT is associated with lower levels of productivity.