Innovation and Productivity of Dutch Firms: A Panel data Analysis

Abstract

This paper revisits, at the firm level, the innovation-productivity relationship based on the empirical research initiated by Crépon, Duguet and Mairesse (1998). We estimate a structural, dynamic panel data model that disentangles the impact of R&D expenditure on (European) patents and the impact of patents on Total Factor Productivity growth. We match the entire population of patents issued by the European Patent Office to roughly 3000 firms (group enterprizes), located in the Netherlands, for the 2000-2006 period. We allow for the possibility that a firm does not report its R&D. We find evidence that R&D affects the output innovation positively and significantly which in turn has a positive impact on productivity. The persistence of input and output innovation is statistically confirmed but does not appear to affect the innovation-productivity relationship.