The Innovation Flow in the German Economy: an Input–Output Analysis on the IFO Innovation Survey Data Base

Innovation expenditures can be used as quantitative indicators of qualitative changes in technology. They include all expenditures for research, development, design, patents and licences, production preparation and market introduction. Process innovations in the form of investment for rationalization are a special kind of innovation expenditure. Since 1979, the IFO Innovation Survey has collected these data annually for German industries. The direct measurement of innovation activities of firms or industrial sectors is a first step in analyzing the consequences of technical change for growth and employment. In an industrialized economy, where specialization in production is very important for efficiency and competitiveness, the intersectoral diffusion of innovation must be identified. For this reason the so-called innovation-flow matrix was developed. In order to identify a potential change in the intersectoral structure of innovation activities it was necessary to generate actual input–output tables. A specific method for updating input–output matrices was developed. It is based on an input–output model which takes into account the basic idea of ‘activity analysis’. There are several possibilities of using the innovation expenditures of the IFO Innovation Survey. Which type of innovation-flow matrix is the best depends on the particular question in mind. They can be used as components for the development of dynamic input–output models in which the innovation activities are used as specific explanatory variables of technical change, employment and economic growth.