Innovation capabilities and firm labor productivity

This study relies on a Cobb-Douglas production function to assess the relationship between the development of innovation capabilities by firms and their labor productivity. Intra-organizational capabilities relate to firms’ corporate culture and work organization, generation of innovative ideas and selection of projects, and innovation funding sources. Inter-organizational capabilities relate to the use of external information from vertical partners, competitors, and consultants, and to R&D partnerships with scientific institutions. In addition to the traditional effect of a growth in the ratio of physical capital per employee, both types of innovation capabilities are found to significantly increase labor productivity.