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Cambridge Journal of Economics Advance Access originally published online on August 8, 2005
Cambridge Journal of Economics 2006 30(3):435-458; doi:10.1093/cje/bei067
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

Innovation and economic performance in services: a firm-level analysis

Giulio Cainelli, Rinaldo Evangelista and Maria Savona*

* University of Bari, and CERIS-CNR, Milan; IRPPS-CNR, Rome and University of Camerino; and SPRU, UK, and BETA, Strasbourg, respectively

Addresses for correspondence: Giulio Cainelli, University of Bari, and CERIS-CNR, Milan, Italy; email: cainelli{at}idse.mi.cnr.it; Rinaldo Evangelista, IRPPS-CNR, Rome and University of Camerino, Italy; email: r.evangelista{at}irpps.cnr.it; and Maria Savona, SPRU, Science and Technology Policy Research, University of Sussex (UK) and BETA, Bureau d'Economie Théorique et Appliquée UMR CNRS 7522 Pôle Européen de Gestion et d'Economie, Strasbourg, France; email: savona{at}cournot.u-strasbg.fr

Abstract

This paper explores the two-way relationship between innovation and economic performance in services using a longitudinal firm-level dataset which matches data from the second Community Innovation Survey, CIS II (1993–95), against a set of economic variables provided by the System of Enterprise Accounts (1993–98). The results presented show that innovation is positively affected by past economic performance and that innovation activities (especially investments in ICTs) have a positive impact on both growth and productivity. Furthermore, productivity and innovation act as a self-reinforcing mechanism, which further boosts economic performance. These findings provide empirical support for the endogenous nature of innovation in services and the presence in this sector of competition models and selection mechanisms based on innovation.

Key Words: Technological innovation • Economic performance • Service sector

JEL classifications: O31, O33, L80

Manuscript received March 10, 2003; final version received June 6, 2005.


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