Innovation, profitability and growth in medium and high-tech manufacturing industries: evidence from Italy

Abstract

The main goal of this article is to assess the impact of product innovation on the economic performance of firms operating in Medium and High-Tech (M&HT) industries. Using information from a large and unique dataset on Italian firms we estimate, by means of Propensity Score (PS) matching methods, a positive and significant ‘innovation premium’ both in terms of profitability and growth (in the short-run) for those firms who introduced new innovative products. We also find that this innovation premium is particularly large for small firms and even more so when considering new established firms.

Keywords:

• innovation
• profitability
• growth
• propensity score estimation

JEL Classification::

• L11
• L25
• O30

Acknowledgements

We would like to thank Bettina Peters and participants to the 3rd ZEW Conference on the Economics of Innovation and Patenting in Mannheim for useful comments. Franco Malerba, Maria Luisa Mancusi and Andrea Vezzulli acknowledge the financial support of the MIUR, Italian Ministry for Education, Universities and Research (FIRB, Project RISC – RBNE039XKA: ‘Research and entrepreneurship in the knowledge-based economy: the effects on the competitiveness of Italy in the European Union’).

Notes

¹ There are a number of studies also studying the effects of innovation on productivity (see, e.g. Crépon et al., 1998), export (e.g. Wakelin, 1998) and survival (e.g. Audretsch, 1995; Cefis and Marsili, 2006).

² As resulting by each firm's accounting register filed yearly at the Italian Chamber of Commerce.

³ Our list of sectors effectively almost totally overlaps with the list of OECD high and medium-high tech industries. We only exclude industry 35 (transport equipment) and include industry 25 (rubber and plastic products), which is classified by OECD as medium-low tech industry.

⁴ For further details, see the harmonized questionnaire of the CIS3 – Eurostat.

⁵ Unfortunately we have no precise information on the causes of attrition, whereas we are aware that it can occurs for both entry and exit of firms during the period 1998–2003 as a consequence of different events such as post-1998 establishment, change in fiscal domicile or juridical form, fusion, merger, acquisition, inheritance and succession, bankruptcy.

⁶ The number of observations involved in this analysis is further reduced to 1499 firms (from the previous working sample of 1988 firms) due to the presence of missing values for some of the regressors listed in Tables 10 and 11.

⁷ We checked for the presence of multicollinearity amongst our regressors and no severe variance inflation factor emerged.

⁸ Detailed output is available upon request.

⁹ See for instance Bernard and Jensen (1999), Hitt et al. (1991) and Alvarez and Robertson (2004).

¹⁰ See for instance Becker and Ichino (2002) for an extensive review of matching methods based on PS estimation.

¹¹ See Becker and Ichino (2002) for the analytical formulas.