Innovation and Productivity in Services: Empirical Evidence from Latin America

Aug 2014
This paper analyzes and compares the determinants of innovation in the service industry and its impact on labor productivity at the firm level in three countries of Latin America (Chile, Colombia, and Uruguay). The main findings show that, similar to what is observed in manufacturing industry, service firms that invest the most in innovation activities are more likely to introduce changes or improvements in their production process and/or product mix, and those firms that innovate have higher labor productivity than non-innovative firms. Size was found to be a less relevant determinant of innovation in services than in manufacturing, suggesting that the need for infrastructure and associated sunk costs are lower in services. Conversely, cooperation was found to be far more important for innovation in services than in manufacturing, in line with the more interactive nature of innovation in services. Yet, large differences in statistical significance and size of the coefficients of explanatory variables among the countries studied suggest that the framework conditions where a firm operates have an important role in innovation decisions.