The Relationship between Product and Process Innovations and Firm Performance: Microeconometric Evidence

A growing number of studies have recently analysed the entire link between innovation input, innovation output and productivity (CDM model), thereby trying to shed some light into the ”black box” of the innovation process at the firm level. One problem in previous studies is that they only use an output indicator for product innovations. Using German data from the CIS3 (3 Community Innovation Survey) performed in 2001, this paper enlarges the CDM model by including an additional equation for the output of process innovations. This new indicator is measured as the share of reduction in unit costs due to process innovations. Estimates have shown that the growth rate of labour productivity increases significantly with the success of product innovations, but no similar effect pertaining to process innovations is