Innovation and productivity in manufacturing and service firms in Catalonia: a regional approach

Abstract

This article analyses the determinants of research and development (R&D) and the role of innovation on labour productivity in Catalan firms. Our empirical analysis found a considerable heterogeneity in firm performances between the manufacturing and service industries and between low- and high-tech industries. The frontiers that separate manufacturing and service industries are increasingly blurred. In Catalonia high-tech knowledge-intensive services (KIS) play a strategic role in promoting innovation in both manufacturing and service industries, and driving growth throughout the regional economy. Empirical results show new firms created during the period 2002–2004 that have a greater R&D intensity than incumbent firms (54.1% in high-tech manufacturing industries and 68.8% in high-tech KIS). Small and young firms in the high-tech KIS sector are very prone to carrying out R&D and they invest more in innovation projects. R&D expenditures, output innovation, investment in physical capital, market share and export have positive effects on labour productivity in both the manufacturing and service sectors. Firm size, on the other hand, has a positive effect on productivity in manufacturing industries but not in services.

Keywords:

• innovation
• R&D
• productivity
• knowledge-intensive services

JEL Classification :

• 140
• 310
• L100

Acknowledgements

The database used in this paper was provided by the Catalan Statistics Institute (IDESCAT). The author acknowledges useful comments and suggestions from Mercedes Teruel, two anonymous referees and the managing editor. Veronica Gombau provided excellent research assistance. The usual disclaimers apply.

Notes

Despite this, it is not easy to analyse the nature of the innovation process in services given the characteristics of the information data. The fact that the Oslo manual and CIS questionnaire present a clear dichotomous distinction between (technological) product and process innovation limits the possibilities of properly studying the differences in the pattern of innovation in manufacturing and service firms.

Empirical studies show that innovation rates are greater in those regions with high concentrations of KIS (Camacho and Rodríguez 2005b).

Strambach (2001) argued that KIS, in particular high-tech KIS, have a direct effect on the development of KIS's own innovations and an indirect effect in four different ways: knowledge transfer in the form of specialized technological knowledge or know-how management, integration of the different stocks of knowledge and competences, adaptation of existing knowledge to the specific needs of clients and production of new knowledge. KIS produce and spread knowledge, which is crucial for innovation processes.

There are four editions of the CIS: CIS-1 covering the period 1990–1992, CIS-2 covering the period 1994–1996, CIS-3 covering the period 1998–2000 and CIS-4 covering the period 2002–2004.

According to CIS empirical literature a firm is considered to be innovative when it carries out innovation products or innovation processes and permanent R&D activities. A firm is considered to undertake permanent R&D when it responds in the affirmative to the following question in the survey: Does your company undertake continuous R&D?.

In general, the propensity to patent may differ widely by sectors (Brouwer and Kleinknecht 1999).

For a sample of 2954 Catalan firms in manufacturing and service industries Segarra, Garcia and Teruel (2008) found that innovative firms have higher barriers to innovation than non-innovative firms, especially in the cost and knowledge fields. In addition, small firms have higher barriers to innovation than their counterparts, especially in two items related to cost; lack of internal funds and high cost of innovation. At the industrial group level, high-tech manufacturing shows a higher global index of barriers to innovation, especially in the items related to cost factors, than low-tech manufacturing and KIS.

Cefis and Orsenigo (2001) observe with panel data on patent applications to the European Patent Office in the period 1978–1993 that some large firms were persistently analysed as non-innovators, whereas small firms were persistent innovators.

For Spanish firms Segarra and Arauzo (2008) found that R&D cooperation performance between firms and partners differs a lot between manufacturing and service industries and between low- and high-tech industries.

As we did, in a sample of Spanish manufacturing firms, Huergo and Jaumandreu (2004) found that the innovation process at some point leads to extra productivity growth, which persists but decreases over time.

Extensive empirical literature has found that a firm's decisions on R&D and physical investment are affected by financing constraints. For a panel of German firms, Harhoff (2000) found evidence that larger firms have no financing constraints on physical investment but that small firms do. He found no empirical evidence of financing constraints on R&D investments. On the other hand, some research provides empirical evidence that R&D expenditures and physical investment are highly sensitive to cash flow and that R&D activities are affected by financial constraints (Hall 1992).

The sensitivity of labour productivity to R&D investment is moderate in developing economies that are still a long way from the technological frontier. For example, in a range of Chilean firms, Benavente (2006) found that R&D does not contribute to productivity.