Peters Bettina, Ph.D, Centre for Economic Research (ZEW), P.O.Box 10 34 43, Mannheim, D-68034, Germany
A growing number of studies recently analysed the link between innovation input, innovation output and productivity (CDM model) and thus try to shed some light into the "black box" of the innovation process at firm level. In comparison to previous research, this paper extended the CDM model by introducing a second knowledge production function for the outcome of process innovations (cost savings due to rationalisation innovations). This might alleviate the problem that previous studies have encountered in using an equation for product innovations as the sole output of innovation activities while the input measure (R\&D or innovation expenditure) is related to both product and process innovations. Using panel data for German manufacturing firms covering the period 2000-2003, the results confirm that product innovations have a positive impact on labour productivity and labour productivity growth. The estimated output elasticity of knowledge capital, approximated by product innovation outcome, of about 0.04 is slightly lower than the traditional output elasticity estimated on the basis of an R\&D capital stock. With respect to process innovations, the analysis is less clear-cut. There is weak evidence that the effect is positive and higher than that of product innovations.