Innovation and Productivity in Services: Evidence from Chile

This paper analyzes empirically the relationship between innovation and productivity in the Chilean services sector. Consistent with recent evidence on developed countries, we find that services firms are as innovative as firms in the manufacturing industry. In the basic model, we also find that both industries have similar determinants of the investment in innovation and the probability of introducing innovations (products or process), such as size and export status. In several extensions we find similar roles for technological and non-technological innovation in labor productivity and for determinants such as skill intensity and financial restrictions. In general, our evidence suggests that that innovation input and output is associated with improvements in productivity in both sectors. As extension of the work of Crespi and Zuñiga (2012) we test whether financial constraints are more relevant for either manufactures or services, finding that these seem to be active just for the services sector. We also test for the role of skills finding that they play a central role on the decision to spend in R&D and labor productivity.