Producing Innovations: Determinants of Innovativity and Efficiency

In this chapter, we investigate the knowledge production function, using the Community Innovation Survey, an unbalanced firm-level panel data set collected in the Netherlands between 1994 and 2004. This database allows us to span the entire innovation process from initial resources committed (R&D labor and the accumulated knowledge stock) to the final resulting sales volume of new products. We find that inefficiency accounts for between 50 and 92% of the unexplained between firm and over time variation in innovation output, with changes in efficiency explaining on average 62% of the between-firm variation in innovativeness. We do not find a significant difference in average inefficiency between those that do and those that do not cooperate with competitors. However, although government funding does not affect the marginal productivity of the knowledge stock and research labor, firms receiving government support are more efficient than those that do not. Finally, we find that more competitive firms are more innovative in terms of generating new product sales from innovations