Innovation in Services: The Hard Case for Latin America and the Caribbean

Recent research conducted by the IDB shows that innovation positively affects productivity growth in the Latin American and Caribbean region, although the evidence comes almost exclusively from the manufacturing sector. The dearth of evidence regarding innovation in services is related, at least in part, to uncertainty with respect to how innovation in services actually works, how it can best be measured and whether or not old measurement tools (biased toward manufacturing and R&D) are really applicable to innovation in service sector environments. This paper aims to provide a deeper understanding of the dynamics at play in the service sector in the region and the relationship between productivity and innovation in services (as well as specific sub-sectors of services) represents a policy making opportunity that, if ignored, could contribute to prolonged productivity lags in the region, while, if well designed and implemented, could have large economic payoffs. This paper was presented at the Fifth Americas Competiveness Forum for the Inter-American Development Bank and Compete Caribbean Santo Domingo, Dominican Republic, October 5-7, 2011.