Productivity, Innovation Creation and Absorption, and R&D. Micro Evidence for Italy

By exploiting a rich firm level data-base, this paper presents novel empirical evidence on the effect of process and product innovations on productivity, as well as on the role played by R&D and fixed capital investment in enhancing the likelihood of introducing innovations at the firm level. Our results imply that process innovation has a large impact on productivity. Furthermore, R&D spending is strongly positively associated with the probability of introducing a new product, whereas fixed capital spending increases the likelihood of introducing a process innovation. The latter result might reflect the fact that new technologies are frequently embodied in new capital goods. However, the effect of fixed investment on the probability of introducing a process innovation is magnified by R&D spending internal to the firm. This implies that R&D can affect productivity growth by facilitating the absorption of new technologies.