Knowledge Diffusion, Technological Innovation and TFP Growth at the Firm Level : Evidence from French Manufacturing

The purpose of this paper is to examine how the Solow residual relates to innovation at the firm level. We estimate two kinds of relationships. The first relationship explains innovation output from innovation inputs. The second relationship relates TFP growth to innovation output. We obtain two main results. First, the determinants of incremental and radical innovations are not the same. Radical innovations are made by firms that use formal R&D and codified external sources of knowledge (patents and licenses). At the opposite, incremental innovations are implemented by the firms that use the less formal R&D and that mostly adopt new equipment goods. The second result is that only radical innovations significantly affect TFP growth. An important implication of this study is that patent and licenses play an important role in promoting growth since they favor radical innovations