20160714 StrategyNZ - One-day Workshop - Simon Wakeman Powerpoint(2016)

Innova&on & the performance of New Zealand firms

Simon Wakeman NZAE conference 1 July 2016

1

Low investment in knowledge-‐based capital may explain up to 40% of the produc&vity gap rela&ve to the OECD average

2 Source: NZPC; de Serres et al. (2014)

Interna&onal comparisons show NZ near top of OECD rankings in genera&ng science but lower ranked in commercialising innova&on

NZ’S AVERAGE RANKING IN TOP-‐LEVEL CATEGORIES OF OECD STATISTICS

3

7

11 12

20 19

26

Science base Human resources Internet use for innovaCon

Business R&D and innovaCon

Knowledge flows and

commercialisaCon Entrepreneurship

Source: OECD (2012). Compara?ve performance of na?onal science and innova?on systems

Use Sta&s&cs NZ’s Longitudinal Business Database to study rela&onship between innova&on and produc&vity for New Zealand firms

DATA SOURCES

Innova&on ac&vity - Business Opera?ons Survey (BOS) -  Intellectual Property Office (IPONZ)

Produc&vity es&mates (Fabling & Mare, 2015)

Financial data - Annual Enterprise Survey (AES) -  IR10 tax returns

Access to the data presented was managed by Sta?s?cs New Zealand under strict micro-‐data access protocols and in accordance with the security and confiden?ality provisions of the Sta?s?c Act 1975. These findings are not Official Sta?s?cs. The opinions, findings, recommenda?ons, and conclusions expressed are those of the author/researcher, not Sta?s?cs New Zealand or the New Zealand Produc?vity Commission.

Longitudinal Business Database

R&D ac&vity - Business R&D Survey - Business Opera?ons Survey (BOS)

Government assistance - Payments from government programmes (incl. R&D grants)

LBD contains a range of measures reflec&ng different aspects of innova&on

MEASURES OF INNOVATIVE ACTIVITY

5

5

Sample contains responses to Business Opera?ons Survey (2005-‐2013).

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Engaged in R&D

Product development expenditure (R&D/design/markeCng/other)

Filed patent

Registered trademark

Any innovaCon

Product innovaCon (new to world/NZ/firm)

Sales from new products

Process innovaCon

OrganisaConal innovaCon

MarkeCng innovaCon

% total expenditure/sales

% firms engaged in ac&vity

R&D expenditure is not a good proxy for innova&on output in all cases

R&D ACTIVITY VS INNOVATION ACTIVITY TYPE OF INNOVATION EXPENDITURE BY SECTOR

6

Ever engaged in innovaCon

No Yes Ever engaged

in R&D No 27.5% 54.7% Yes 1.5% 16.3%

Sample contains firms responding to Business Opera?ons Survey Innova?on module in 2007, 2009 & 2011.

Sample contains firms responding to Business Opera?ons Survey (2005-‐2012).

0% 2% 4% 6% 8% 10% 12% 14%

Primary

Manufacturing

Services

R&D expenditure Design expenditure MarkeCng expenditure Other expenditure

Use approach developed by Fabling & Mare (2015) to es&mate firm produc&vity

MEASURING FIRM PERFORMANCE

7

Labour (L)

Raw materials/ inputs (M)

Capital (K)

ProducCon Output (GO)

( ) ( ) ( ) ( )ln ln ln ln

where , { , , }

r r sit j r it rs it i

r s rt i

r

GO X X X

r s L K M

α β δ γ ε≠

+= + + +

∈

∑ ∑∑

( )∑ ( ) ( ) ( )MFP:

Empl

ln(

oyment:

Valued added:

Labour productivity

ln ln ln ln

where , { , , }

:

)

it

it it

it it

it

r r sit it r it rs it it

rr s r

GO

GO

MFP GO X X X

r s L K M

L

M

ML

β δ≠

−

∈

−

−

−

= ∑∑ ∑

0

20

40

60

80% dif

Employment Value-added output Labour productivity MFPoutput type

R&Dactivity

Productinnovationnew to world

Productinnovation

Processinnovation

Organisationalinnovation

Marketinginnovation

RELATIVE OUTPUT LEVEL INNOVATORS VS. NON-‐INNOVATORS BY INNOVATION MEASURE

On average innova&ng firms larger but less produc&ve than non-‐innova&ng firms in year in which innova&on occurs

8

Chart shows difference in performance measure predicted from series of OLS regressions of output level in year 0 on innova?on in year 0 with controls for year and industry. Bars show 95% confidence intervals. Sample contains firms in BOS 2005-‐2011 with performance measures up to 2012. Observa?ons weighted by BOS sampling weights.

0

10

20

30

%

1 2 3 4 5 6 7 8 9 10decile of mfp

Product innovation(new to world)

1 2 3 4 5 6 7 8 9 10decile of mfp

Product innovation(new to NZ)

1 2 3 4 5 6 7 8 9 10decile of mfp

Product innovation(new to the firm)

1 2 3 4 5 6 7 8 9 10decile of mfp

Process innovation

1 2 3 4 5 6 7 8 9 10decile of mfp

Organisational innovation

1 2 3 4 5 6 7 8 9 10decile of mfp

Marketing innovation

PROPORTION OF FIRMS ENGAGED IN INNOVATION BY DECILE OF PRODUCTIVITY IN YEAR 0

Most produc&ve firms least likely to innovate

9

Chart shows likelihood of firm innova?on predicted from probit regression of innova?on ac?vity in year 0 on produc?vity decile in year 0. Bars show 95% confidence intervals. Sample contains firms in BOS 2005-‐2011. Observa?ons weighted by BOS sampling weights

Use difference-‐in-‐differences approach to measure impact of innova&on on produc&vity

EMPIRICAL APPROACH •  Regress change in firm output/producCvity (lnYin -‐ lnYi0) on innovaCon in year 0 (I0)

10

0 0 0ln – ln in i I i X iY Y I X tα β β ε= + + + +

•  Compare within-‐firm differences in output controls for unobserved firm characterisCcs affecCng output levels

•  Control for observed firm characterisCcs (age, size, industry, etc.)

controls for observed firm characterisCcs affecCng changes in output

•  For MFP, use 2-‐year moving average accounts for measurement error •  Weight observaCons by BOS sampling weights Cmes predicted gross output

quanCCes corresponds to aggregate economic output/producCvity

•  Do not instrument for innovaCon (cf Crepon, Duguet & Mairesse, 1998)

-6

-4

-2

0

2

4%

0 1 2 3 4years

change in employment

-6

-4

-2

0

2

4%

0 1 2 3 4years

change in value-added output

-6

-4

-2

0

2

4%

0 1 2 3 4years

change in labour productivity

-6

-4

-2

0

2

4%

0 1 2 3 4years

change in MFP

Yes No

-10

0

10

20%

0 1 2 3 4years

-10

0

10

20%

0 1 2 3 4years

-10

0

10

20%

0 1 2 3 4years

-10

0

10

20%

0 1 2 3 4years

RELATIVE GROWTH BY OUTPUT TYPE OF R&D ACTIVE VS NON-‐ACTIVE FIRMS

Firms engaged in R&D ac&vity have faster employment and output growth than non-‐R&D-‐ac&ve firms but produc&vity growth not different

Charts show difference in predic?ve margins from series of OLS regressions of change in output from year 0 to year t on innova?on in year 0. Regressions include controls for base year and firm characteris?cs. Bars show 95% confidence intervals. Sample contains firms in BOS 2005-‐2011 with output measures un?l 2012. Observa?ons weighted by BOS sampling weights ?mes predicted output. 11

-4

-2

0

2

4%

0 1 2 3 4years

change in employment

-4

-2

0

2

4%

0 1 2 3 4years

change in value-added output

-4

-2

0

2

4%

0 1 2 3 4years

change in labour productivity

-4

-2

0

2

4%

0 1 2 3 4years

change in MFP

Yes No

-10

-5

0

5

10%

0 1 2 3 4years

-10

-5

0

5

10%

0 1 2 3 4years

-10

-5

0

5

10%

0 1 2 3 4years

-10

-5

0

5

10%

0 1 2 3 4years

RELATIVE GROWTH BY INNOVATION ACTIVITY OF INNOVATORS VS NON-‐INNOVATORS

Similarly firms engaged in innova&on grow faster in size but not produc&vity

Charts show difference in predic?ve margins from series of OLS regressions of change in output from year 0 to year t on innova?on in year 0. Regressions include controls for base year and firm characteris?cs. Bars show 95% confidence intervals. Sample contains firms in BOS 2005-‐2011 with output measures un?l 2012. Observa?ons weighted by BOS sampling weights ?mes predicted output. 12

-6

-4

-2

0

2%

0 1 2 3 4years

Product innovation

-6

-4

-2

0

2%

0 1 2 3 4years

Process innovation

-6

-4

-2

0

2%

0 1 2 3 4years

Organisational innovation

-6

-4

-2

0

2%

0 1 2 3 4years

Marketing innovation

Yes No

-4

-2

0

2

4%

0 1 2 3 4years

-4

-2

0

2

4%

0 1 2 3 4years

-4

-2

0

2

4%

0 1 2 3 4years

-4

-2

0

2

4%

0 1 2 3 4years

RELATIVE MFP GROWTH BY INNOVATION TYPE OF INNOVATORS VS NON-‐INNOVATORS

Only firms engaged in marke&ng innova&on experience significantly higher produc&vity growth

Charts show coefficients from OLS regressions of change in 2-‐yr-‐MA of MFP from year 0 to t on innova?on in year 0. Regressions include controls for base year and firm characteris?cs. Bars show 95% confidence intervals. Sample contains firms in BOS 2005-‐2011 with output measures un?l 2012. Observa?ons weighted by BOS sampling weights ?mes predicted output.

13

-6

-4

-2

0

2

4%

0 1 2 3 4years

2005

-6

-4

-2

0

2

4%

0 1 2 3 4years

2007

-6

-4

-2

0

2

4%

0 1 2 3years

2009

-6

-4

-2

0

2

4%

0 .2 .4 .6 .8 1years

2011

Yes No

-5

0

5

10%

0 1 2 3 4years

-5

0

5

10%

0 1 2 3 4years

-5

0

5

10%

0 1 2 3years

-5

0

5

10%

0 1years

RELATIVE MFP GROWTH BY YEAR OF PRODUCT INNOVATORS VS NON-‐INNOVATORS

Returns to innova&on vary drama&cally by year


14

-6

-4

-2

0

2

4%

2005 2006 2007 2008 2009 2010 2011 2012year

all No Yes

RELATIVE MFP GROWTH OVER TIME OF PRODUCT INNOVATORS VS NON-‐INNOVATORS

Product innovators experience higher MFP growth during economic recovery but possibly lower growth during economic downtown


15

RELATIVE MFP GROWTH BY YEAR OF PROCESS INNOVATORS VS NON-‐INNOVATORS

Process innovators appear not to do significantly becer or worse than non-‐innovators


16

-6

-4

-2

0

2

4%

0 1 2 3 4years

2005

-6

-4

-2

0

2

4%

0 1 2 3 4years

2007

-6

-4

-2

0

2

4%

0 1 2 3years

2009

-6

-4

-2

0

2

4%

0 .2 .4 .6 .8 1years

2011

Yes No

-10

-5

0

5%

0 1 2 3 4years

-10

-5

0

5%

0 1 2 3 4years

-10

-5

0

5%

0 1 2 3years

-10

-5

0

5%

0 1years

-6

-4

-2

0

2

4%

2005 2006 2007 2008 2009 2010 2011 2012year

all No Yes

RELATIVE MFP GROWTH OVER TIME OF PROCESS INNOVATORS VS NON-‐INNOVATORS

Returns to process innova&on do not vary significantly by year


17

RELATIVE MFP GROWTH BY YEAR OF ORGANISATIONAL INNOVATORS VS NON-‐INNOVATORS

Similarly returns to organisa&onal innova&on in 2009 significantly higher but not in other years


18

-6

-4

-2

0

2

4%

0 1 2 3 4years

2005

-6

-4

-2

0

2

4%

0 1 2 3 4years

2007

-6

-4

-2

0

2

4%

0 1 2 3years

2009

-6

-4

-2

0

2

4%

0 .2 .4 .6 .8 1years

2011

Yes No

-4

-2

0

2

4

6%

0 1 2 3 4years

-4

-2

0

2

4

6%

0 1 2 3 4years

-4

-2

0

2

4

6%

0 1 2 3years

-4

-2

0

2

4

6%

0 1years

-6

-4

-2

0

2

4%

2005 2006 2007 2008 2009 2010 2011 2012year

all No Yes

RELATIVE MFP GROWTH OVER TIME OF ORGANISATIONAL INNOVATORS VS NON-‐INNOVATORS

Firms doing organisa&onal innova&on during economic downturn experience significantly higher returns during economic recovery


19

RELATIVE MFP GROWTH BY YEAR OF MARKETING INNOVATORS VS NON-‐INNOVATORS

By contrast, marke&ng innovators in 2005 experienced lower produc&vity growth but in 2007 experienced higher growth


20

-10

-5

0

5%

0 1 2 3 4years

2005

-10

-5

0

5%

0 1 2 3 4years

2007

-10

-5

0

5%

0 1 2 3years

2009

-10

-5

0

5%

0 .2 .4 .6 .8 1years

2011

Yes No

-10

-5

0

5

10

15%

0 1 2 3 4years

-10

-5

0

5

10

15%

0 1 2 3 4years

-10

-5

0

5

10

15%

0 1 2 3years

-10

-5

0

5

10

15%

0 1years

-10

-5

0

5%

2005 2006 2007 2008 2009 2010 2011 2012year

all No Yes

RELATIVE MFP GROWTH OVER TIME OF MARKETING INNOVATORS VS NON-‐INNOVATORS

Firms that had introduced marke&ng innova&on did significantly becer during economic downturn


21

-20

-10

0

10%

0 1 2 3 4years

2005

0 1 2 3 4years

2007

0 1 2 3years

2009

0 .2 .4 .6 .8 1years

2011

new to world new only to NZ new only to firm not new

RELATIVE MFP GROWTH BY YEAR OF PRODUCT INNOVATORS BY NOVELTY OF PRODUCT

Innova&on followers did becer than innova&on leaders in 2005 & 2007 but innova&on leaders did becer in 2009


22

-10

-5

0

5

10%

2005 2006 2007 2008 2009 2010 2011 2012year

all new to world new only to NZ new only to firm not new

RELATIVE MFP GROWTH OVER TIME OF PRODUCT INNOVATORS BY NOVELTY OF PRODUCT

Innova&on followers performed becer during economic downtown but innova&on leaders performed becer during the recovery


23

-20

-10

0

10

20%

0-5 yr

s

5-10 y

rs

10-20

yrs

20-50

yrs

50+ y

rs

age

R&Dactivity

Productinnovation

Processinnovation


Marketinginnovation

Younger firms experience highest boost in produc&vity growth following innova&on

RELATIVE CHANGE IN MFP OVER 3 YEARS BY INNOVATION TYPE & AGE

24

Charts show difference in predic?ve margins from series of OLS regressions of change in 3-‐yr MA of MFP from year 0 to year t on innova?on in year 0 interacted with firm characteris?cs and controls for base year. Bars show 95% confidence intervals. Sample contains firms in BOS 2005-‐2011 with output measures un?l 2012. Observa?ons weighted by BOS sampling weights ?mes predicted output.

-10

-5

0

5

10%

0-20 20-50 50-100 100+total employment

R&Dactivity


Productinnovation

Processinnovation


Marketinginnovation

Small-‐to-‐medium size firms appear to do worse if they innovate

RELATIVE CHANGE IN MFP OVER 3 YEARS BY INNOVATION TYPE & FIRM SIZE

25


-20

-10

0

10

20%

Primary Manufacturing Servicessector

R&Dactivity


Productinnovation

Processinnovation


Marketinginnovation

Firms in manufacturing sector experience strongest impact of innova&on on MFP growth

RELATIVE CHANGE IN MFP OVER 3 YEARS BY INNOVATION TYPE & SECTOR

26


-20

-10

0

10

20%

NZ-owned domestic foreign-owned domestic internationallevel of internationalisation

R&Dactivity


Productinnovation

Processinnovation


Marketinginnovation

Interna&onally connected firms engaged in product or organisa&onal innova&on experience higher MFP growth, while domes&c firms have lower growth

RELATIVE CHANGE IN MFP OVER 3 YEARS BY INNOVATION TYPE & INTERNATIONAL FOCUS

27


Innova&on macers for produc&vity, but more for some firms than others

FINDINGS •  R&D and innovaCon associated with growth in size but not necessarily with producCvity •  Firms doing markeCng innovaCon show clearest returns overall, especially in 2007-‐2009 (economic downturn)

•  Firms doing product and organisaConal innovaCon performed beeer afer 2009 (economy recovery), but possibly worse before

•  Younger firms, manufacturing firms, and firms with internaConal connecCons have highest returns to innovaCon

CONCLUSIONS •  More to innovaCon than R&D •  Non-‐technological-‐types of innovaCon maeer as much if not more •  Market condiCons important •  Some types of firms get more value out of innovaCon than others

For more informa&on www.produc&vity.govt.nz

@Nzprocom 28

Government & Nonprofit

20160714 StrategyNZ - One-day Workshop - Simon Wakeman Powerpoint(2016)