Innovation and Productivity in Irish Firms

This paper uses an endogenous switching technique which allows us to utilize micro-econometric data to construct counterfactual scenarios of the innovation-productivity relationship in Irish firms. A firm's innovation effort, capital intensity, firm size, location and its operating environment are key variables in explaining a firms' propensity to innovate. However, the importance of these factors differs across innovation types. We find mixed results on the effect of innovation on the productivity of innovators across innovation types. The results indicate in the counterfactual analysis that all types of innovation have a positive effect on the productivity levels of non-innovating firms.