Information and Communication Technology (ICT) and R&D for Innovation and Productivity

Business innovation is regarded as an important driver of productivity growth. In this paper, it is investigated that R&D and ICT investment at the firm level in an effort to assess their relative importance for innovation. Explicitly, it is used a refined version of the CDM model that includes ICT and R&D investment as the two main inputs into innovation and productivity, and test it on a firm-level panel data set based on the recent four waves of the innovation survey for India. Two measures of innovative output are tested, i.e., four types of innovation (product, process, organizational and marketing innovation) and number of patent applications. It is found that R&D and ICT are both strongly associated with innovation and productivity, with R&D being more important for innovation, and ICT being more important for productivity. These results suggest that ICT is an important driver of productivity growth that could explain the “Indian productivity puzzle”, i.e., the feature that India having a relative low level of R&D intensity. The results also indicate considerable differences between firms in Manufacturing and Services with respect to innovation and productivity effects of ICT, R&D and human capital