Measurement of innovation,

productivity and growth

Outline:
How can innovation be measured?
Illustrations of innovation statistics
Productivity at the firm, industry and
economy level
Comparing productivity and growth across
countries

Introduction

The basic motivation for this chapter is to convey to students that

innovation and its implications can be measured and analysed
There are many problems in this process, but this is true across
all of economic policy
Without measurement & analysis, understanding and policy
will be based on rhetoric, anecdote and lobbying
Since innovation is defined as new ideas that add value, this
automatically means that innovation is driving force behind
growth
Clearly some authors think of technology, or human capital, as
driving growth. These are discussed more in Chap 8, but
essentially these are different perspectives on the same
process. We argue that innovation is a better generic term.

How can innovation be measured?

Surveys
Chapter discusses Community Innovation Survey
(CIS), but lecturer may be able to access
local/regional/national examples
Input measures
R&D is main measure (see next slide)
Output measures
Patents and other IP
Ultimately, productivity and growth are the
outputs
Note that Innovation Indexes tend to mix up inputs
and outputs in very ad hoc way

% of firms involved in innovative

activities, CIS 1998-2000
Innovative
Activities (%)

Product
innovation

New-toProcess
market product innovation
innovation

Belgium

50

40

14

31

Denmark

44

37

19

26

France

41

29

10

21

Germany

61

42

13

34

Italy

36

25

14

26

Sweden

47

32

12

20

UK

36

21

17

R&D
This discussion of R&D is extended in Chap. 4
It is possible to extend this discussion here by
Focusing on national trends, industry breakdowns
and specific firms
In most countries there are a few major companies
that dominate absolute amount, but amount done by
smaller companies may be very important for future
growth
Specific R&D policies (see later discussion in Chap.11
section 11.3)
Problems of compiling real R&D measures and cross
country measures

R&D (OECD Frascati Manual)

S
c
i
e
n
c
e

T
e
c
h
n
o
l
o
g
y

Basic Research: experimental/ theoretical work undertaken

primarily to acquire new knowledge of the underlying
foundations and phenomena and observable facts, without
any particular application or use in view
Applied Research: original investigation undertaken in order
to acquire new knowledge , directed primarily towards a
specific practical aim or objective
Experimental Development: systematic work, drawing on
existing knowledge gained from research and practical
experience, directed to producing new materials, products
and devices; to installing new processes, systems or services;
to improving substantially those already produced or
installed.

R&D in Europe, Japan and the

United States (2003, or 2002*)
Country

R&D/GDP
%

Value of R&D
(millions of euros)

Annual Growth
of R&D (%)

EU15

1.99*

149,231

4.31*

EU25

1.93*

154,941

3.98*

Germany

2.50

43,507

2.70

France

2.19

27,727

2.36

UK

1.87*

23,314

3.52*

Japan

3.12*

87,968

2.18*

USA

2.76

227,030

2.69

R&D personnel in Europe and

Japan (2004, or 2003*)
Country

R&D
personnel/
labour force
%

R&D
personnel
(in FTEs)

Share
working
in BES %

Share
working
in GOV %

Share
working
in HES %

EU25

1.49

2,040,667

53.7

14.3

31.0

EU15

1.59

1,867,505

56.2

13.2

29.5

Germany

1.85

469,100

63.5

15.3

21.1

France

1.71*

346,078*

55.8*

14.8*

27.5*

Japan

1.66*

882,414

65.8

7.0

25.4

Patent applications by domestic residents by

country (RH scale: US & Japan)

Trademark applications by domestic residents by

country (RH scale: US & Japan)
100000

30000

90000

25000
80000
70000

20000
60000
50000

15000

40000

10000
30000
20000

50000
10000

Australia

Canada

Germany

France

United Kingdom

Japan

20
04

20
02

20
00

19
98

19
96

19
94

19
92

19
90

19
88

19
86

19
84

19
82

19
80

19
78

19
76

19
74

19
72

19
70

United States of America

Productivity and growth

To measure real output we use value added
Value added is defined as sales minus raw materials used
Indicates what the firm has truly produced when transforming the
raw materials into the final product
Both sales and raw materials have to be deflated for any price
inflation when measuring over time
Definitions of partial factor productivity:
labour productivity (value added per unit of labour)
capital productivity (value added per unit of capital)
High labour productivity is often largely explained by high levels of
capital per worker (e.g. in mining and the steel industry)
High capital productivity will be present when labour is used
intensively (e.g. in developing countries with scarce capital)

Measuring total factor productivity

This measure improves on partial factor productivity by
correcting for growth in inputs
Derivation of total factor productivity:
Suppose value added (Y) is produced by two input
factors capital (K) and labour (L) and by total factor
productivity (A) according to:

Y = A K aL b
Then growth of TFP is calculated by residual:
gA = gY a gK b gL

Growth in TFP is equal to the growth in value added, less

a times the growth in capital input and b times the
growth in labour input

Annual average growth in GDP per hour

worked (1970-2006)
Australia

Canada

France

Germany

Italy

Japan

UK

US

1970-1980

1.5

1.8

3.7

4.2

2.7

1.6

1980-1985

2.2

1.6

3.1

2.1

1.2

2.5

2.5

1.6

1985-1990

0.2

0.4

2.7

2.5

2.3

4.2

1.4

1.3

1990-1995

1.4

1.9

2.9

2.1

2.3

2.8

1.1

1995-2000

2.5

2.3

2.1

0.9

2.1

2.3

2.2

2000-2006

1.5

1.4

1.4

0.2

2.1

2.1

1970-2006

1.6

1.5

2.7

2.6

2.3

1.7

Average growth of GDP per capita in

emerging markets
Brazil

China

India

Japan

Korea

Taiwan

Thailand

1951-1960

3.93

4.11

1.57

7.54

1.03

4.44

-0.15

1961-1970

4.34

1.45

2.69

9.74

5.82

7.04

5.07

1971-1980

5.38

4.18

1.61

3.18

5.93

7.75

4.62

1981-1990

0.21

8.43

3.48

3.43

7.90

6.59

6.08

1991-2000

0.53

9.15

3.41

1.01

5.19

5.49

3.03

2001-2004

0.09

7.44

4.19

0.72

4.09

2.16

3.97

Other economic growth resources

There is a vast amount of productivity and
economic growth data on web that could be
used to look at specific countries, periods or
industries e.g.
National statistical agencies
World Bank, OECD (includes regular country
studies), IMF
The Groningen Growth and Development Centre
Penn World Table

Possible additional topics

There are a large number of other areas that can be mentioned,
or developed, in a course, including:
Service sector productivity (e.g. Bosworth, B. and J. Triplett
(2003). "Productivity Measurement Issues in Services
Industries: "Baumol's Disease" Has Been Cured." The
Brookings Institution, September 1.
IT and productivity (e.g. Triplett, J. E. (1999). "The Solow
Productivity Paradox: What Do Computers Do to
Productivity?" Canadian-Journal-of-Economics 32(2)(April
1): 309-34.
Regulation and productivity (e.g. Crafts, N. (2006).
"Regulation and Productivity Performance " Oxford Review
of Economic Policy 22(2): 186-202.

Questions
1.

2.
3.
4.
5.

6.

List the input, and output, measures of innovation. How

should one deal with so many possible measures?
R&D is the only important measure of innovation. Discuss.
Choose a selection of firms, or countries, and attempt to
produce a ranking or innovation scoreboard.
What is meant by partial productivity measures? Should
only total factor productivity be used?
What measurement issues should be considered when
comparing GDP per capita across countries? What about
when comparing GDP per capita through time?
What is the use of growth accounting studies?

References
Griliches, Z. (1990) Patent statistics as economic
indicators: a survey, Journal of Economic Literature,
XXVIII (December), 1661-1707.
Lipsey, R. G. and K. I. Carlaw (2004), 'Total factor
productivity and the measurement of technological
change', Canadian Journal of Economics, 37(4), 111850.
Schreyer, P. and D. Pilat (2001) "Measuring
Productivity, OECD Economic Studies 33: 128.
The Economist (14 Nov. 2009) Economic Focus: Secret
Sauce.