A Comparative Perspective on Innovation and Productivity in Manufacturing and Services

This paper serves as another complementary link in a chain of a rather limited number of investigations in the R&D-innovation-productivity relationship within service industries. Innovation has been found to be a major contributor to productivity growth in manufacturing. In this paper, the importance of innovation is explored by comparing manufacturing and service firms in a sample of knowledge intensive industries. In particular we intend to find evidence on the following two issues. First, is there any evidence that the reported weak rate of productivity growth in knowledge intensive services can be explained by a low propensity to be innovative? Second, is it possible that knowledge intensive service firms are less efficient in deriving benefits from innovation than knowledge intensive manufacturing firms? Empirical results based on innovation survey data indicate a surprising similarity in innovation performance between the two categories of firms.