Catching-up with the technology frontier: Micro-level evidence on innovation and growth dynamics

Abstract

This study systematically explores whether firms that innovate experience higher rates of growth than firms that do not innovate for Turkish manufacturing firms, differentiating between different typologies of innovation. Relying on an input-output approach we distinguish between the effects of innovative inputs (R&D) as well as effects of the outputs of innovation (product innovation and process innovation). Concerning that innovation can affect growth of firms heterogeneously depending upon their existing growth performance, our analysis investigates the impact of innovative activities on firm growth for high-growth firms and non-high-growth firms separately. To do so, we utilize a recent and comprehensive firm-level dataset over the period 2003–2012, mainly constructed on the four consecutive waves of the “Community Innovation Surveys”. We employ endogenous switching methodology, controlling for endogeneity and selection bias issues, as well as analysing counterfactual scenarios. The main findings of our study confirm the positive effect of innovation activities on the rate of firm growth. We find firm heterogeneity as regards both propensity to innovate and their benefiting from innovation activities. The results clearly indicate innovative efforts are a more important driver of firm growth for the firms at higher percentiles of growth distribution.