Profitability and innovation: new empirical findings based on italian data 1996-2003

This paper provides new evidence of the short and long-run effects of innovation on firms’ economic performance by exploiting an innovative panel database which for the first time links three waves of the Italian Community Innovation Survey with an administrative, economic and financial data source. Results support the hypothesis that innovation is a significant driver of a firm’s performance. Support for the firm efficiency view of firm profitability is found. Conversely, industry concentration, as a proxy for the industry view of competition, is not the key variable for explaining profitability. Sectoral spillovers generated by both the introduction of new products and the use of new processes positively affect a firm’s profitability.