Innovation, Productivity and Growth: An Analysis of Irish Data

This paper examines the dynamics of knowledge sourcing, innovation and business performance for a panel of Irish manufacturing plants. A recursive system is estimated comprising an innovation production function which relates knowledge inputs to innovation success, and equations which relate innovation to productivity and growth. Results indicate that both internal (R&D) and external (supply chain and non-supply chain) sources of knowledge are important determinants of innovation success, and there is evidence of substitutability between them. Innovation has a strong positive effect on growth, and has a negative contemporaneous effect, but positive lagged effect, on productivity. Process innovation has a positive effect on productivity with no lagged effect. There is also evidence that skill levels are important both in shaping the ability of plants to be innovative, and in their ability to exploit innovation to achieve higher growth and productivity.