Innovation height, spillovers and TFP growth at the firm level: Evidence from French manufacturing

Abstract

We examine the contribution of incremental and radical innovations to total factor productivity (TFP) growth at the firm level. The first part of our analysis is dedicated to the determinants of innovation and reveals two different innovation regimes. On the one hand, radical innovations rely strongly on firm-level spillovers, including property rights, and formal internal research while, on the other hand, incremental innovations rely mostly on the adoption of equipment goods accompanied by informal research. We find that radical innovations are the only significant contributors to TFP growth so that innovation height matters. We also find evidence that TFP growth is better represented by an upward shift of the production function than by a continuous innovation measure. Overall, the growth gains that we find are comparable to the ones of the previous studies.growth, innovation, total factor productivity, Solow residual, spillovers