Does history matter for the relationship between R&D, Innovation and Productivity?

This paper analyzes the relationship between R&D expenditures, innovation and productivity growth, taking into account the possibility of persistence in firms’ behaviour. We study this relationship for a sample of Spanish manufacturing firms between 1990 and 2005, estimating a model with four equations: participation in technological activities, R&D intensity, the generation of innovations and the impact of these technological outputs on total factor productivity growth. Our results reflect the existence of true state dependence both in the decision of R&D investment and in the production of innovations. The omission of this persistence leads to an overestimation of the current impact of innovations on productivity growth. However, the presence of persistence in technological inputs and outputs entails current R&D activities having long–run effects on a firm’s productivity.