Innovation and Firms' Productivity Growth in Slovenia: Sensitivity of Results to Sectoral Heterogeneity and to Estimation Method

The paper examines implications of endogenous growth theory on the relationship between firm productivity, innovation as well as productivity growth by combining information on firm-level innovation (CIS) with accounting data for a large sample of Slovenian firms in the period 1996-2002. We employ several different estimation methods in order to control for the endogeneity of innovation (Crä¿»on-Duguet- Mairesse - CDM - approach) and idiosyncratic firm characteristics (matching and average treatment effects). We find a significant and robust link between productivity levels and firm propensity to innovate, while the results on the link between innovation activity and productivity growth are not robust to different econometric approaches. OLS estimates seem to provide some empirical support to the thesis of positive impact of innovation on productivity growth. More detailed empirical tests, however, reveal that these results are mainly driven by the exceptional performance of a specific group of services firms located in the fourth quintile with respect to size, productivity and R&D propensity measure. Estimates based on the matching techniques do not reveal any significant positive effects of innovation on productivity growth, regardless of the sectors, firm size and type of innovation.