Technological Innovation and Productivity in Late-Transition Estonia: Econometric Evidence from Innovation Surveys
The University of Tartu Faculty of Economics and Business Administration Working Paper No. 61-2008
Posted: 30 Apr 2008
Date Written: April 17, 2008
There is growing interest in modeling the relationship between innovation and productivity in developing and transition economies due to their attempts to establish knowledge-based economies and to increase business R&D. Our paper investigates whether there is a significant relationship between technological innovation and productivity in the manufacturing sector of Estonia. We use firm-level data for the analysis from two waves of Community Innovation Surveys (CIS3 and CIS4) from 1998-2000 and 2002-2004, which is then combined with financial data about firms from the Estonian Business Register in order to study the effect of innovation at higher leads. We apply a structural model that involves a system of equations on innovation expenditure, innovation outcome and productivity. Our results show that during 1998-2000 only product innovation increased productivity, while in 2002-2004 only process innovation had a positive effect on productivity. This can probably be explained by the different macroeconomic conditions in the two periods.
Keywords: productivity, innovation, Estonia
JEL Classification: O31, O33, C31, O10
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