Complementarities Affecting the Returns to Innovation

The purpose of this paper is to determine which firm strategies, perceived benefits of innovation and objectives for innovating in various manufacturing industries are indeed complementary with innovation. The test for complementarity is performed by proving that the data satisfies a set of supermodularity parametric equation restrictions. Our estimation results, from Canada's national innovation survey, show a wide variation in complements affecting the perception of the value of innovation to a firm. In terms of profit, complementary variable pairs for world-first innovators exceed those of firms who report a Canada-first or firm-first innovation. With labour productivity, complementary variable pairs for the Canada-first innovators exceed those of the world- and firm-first innovators. It is readily apparent though, that a high-technology industry does not necessarily equate to a high degree of complementarity.