Book Description

This paper argues that the lack of evidence for a strong link between innovation & productivity in Canada is due to incomplete measures of innovation. The authors first construct a comprehensive measure of innovation that models innovation as an unobservable latent variable that underlies four indicators: research & development propensity, measured as a percentage of output; patents per worker; technology adoption, measured as real investment in machinery & equipment; and skill intensity, measured as the employment share of workers with a university education. The authors then examine the relationship between innovation & productivity in 14 Canadian manufacturing industries over 1980-1997 using the new measure. The results also show that the length of time it takes for innovation to have a positive & significant impact on productivity differs across industries.