Innovation and Productivity of Dutch Firms: A Panel Data Analysis

Abstract

This paper revisits the empirical innovation-productivity relationship based on the research initiated by Crépon, Duguet, and Mairesse (1998). We use a dataset including (almost) all firms (group enterprises), located in the Netherlands, that applied for one or more patents issued by the European Patent Office during the period 2000-2006. We estimate a structural, dynamic panel data model that disentangles the impact of R&D expenditure on (European) patent applications and the impact of patent applications on Multi-Factor Productivity (Growth). We also allow for the possibility that a firm with patent applications does not report its R&D. We find evidence that the output innovation affects productivity positively and the strong presence of random effects in explaining the R&D-patent relationship is an important driver to innovation.