Productivity and innovation: an overview of the issues

To introduce the subject, the paper compares the Canadian performance on principal indicators of productivity and innovation with the U.S. and other countries. Follows an overview of principal sources of economic welfare, economic growth and increasing productivity with a special attention given to the relationship between productivity growth and innovation. Before addressing the relationship between innovation and productivity, the paper introduces the concepts and their operational measures or indicators, the sources of innovation and their effects as well as financing and public policies in support of innovation. In the section on the link between innovation and productivity the paper surveys the representative empirical studies of this relationship on industry and enterprise level, including the evidence on private and social returns on investment in R&D and innovation in Canada and abroad. Follows a description of the current econometric modelling of micro-data on innovation and its effect on firm performance. These innovation surveys-based micro econometric studies are inspired by the four-stage CDM model that predicts (1) the probability that a firm innovates, (2) the resources it invests in the activity, (3) the commercial results of innovation and (4) the effect of innovation on firms’ performance indicators such as sales per employee, labour productivity and its growth etc. This model provides the standardized methodology for an ongoing international research project analyzing the data from innovation surveys of majority of OECD countries.