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Innovation and Firm Performance in the Services Sector in Estonia

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Innovation Systems in Small Catching-Up Economies

Part of the book series: Innovation, Technology, and Knowledge Management ((ITKM,volume 15))

Abstract

The empirical literature on innovation has devoted too little attention to the differences in relationship between innovation and productivity in various subbranches of the services sector. In this paper, we investigate how the innovation–productivity relationship varies across subbranches of the services sector. For our analysis, we employ the CDM structural model of innovation process, which consists of equations for innovation expenditures, innovation output, and productivity. We use panel data from three the community innovation surveys of Estonia. Our results show that product and process innovation are associated with higher total factor productivity (TFP) of firms in the services sector. Somewhat surprisingly, the effect of innovation on productivity is stronger in the less knowledge-intensive services sectors, despite the lower frequency of innovative activities over there. We also confirm that external knowledge linkages matter a lot in the innovation process of firms in different branches of the services sector.

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Notes

  1. 1.

    Empirical studies that use CIS data to study the innovation process in the services sector include among others: comparisons of different countries’ CIS results by the OECD work-group (2009). A study based on CIS data from Greece is implemented in Stelios and Aristotelis (2008), France: Robin and Mairesse (2008) and Musolesi and Huiban (2010). Italy: Cainelli et al. (2006). Portugal: Lopes and Godinho (2005), Sweden: Lööf and Heshmati (2006).

  2. 2.

    For example, earlier papers from Western and Southern Europe (Robin and Mairesse 2008 for France; Lopes and Godinho 2005 for Portugal; Stelios and Aristotelis 2008 for Greece) have convincingly shown that R&D is less important as an innovation input in the services sector than in manufacturing. Therefore, we also use a broader measure – the “innovation expenditure” as an innovation input measure in estimating the CDM model.

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Acknowledgments

The authors acknowledge financial support from the Ministry of Education and Research of the Republic of Estonia target financed project no. SF0180037s08 and Estonian Science Foundation grant no. 8311. We are grateful to Jaanika Meriküll for comments.

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Authors and Affiliations

  1. Faculty of Economics and Business Administration, University of Tartu, Tartu, Estonia

    Jaan Masso & Priit Vahter

  2. Birmingham Business School, University of Birmingham, Birmingham, UK

    Priit Vahter

Authors
  1. Jaan Masso
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  2. Priit Vahter
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Corresponding author

Correspondence to Jaan Masso .

Editor information

Editors and Affiliations

  1. School of Business, George Washington University, Washington, 20052, District of Columbia, USA

    Elias G. Carayannis

  2. Tartu, 51009, Estonia

    Urmas Varblane

  3. Tartu, 51009, Estonia

    Tõnu Roolaht

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Masso, J., Vahter, P. (2012). Innovation and Firm Performance in the Services Sector in Estonia. In: Carayannis, E., Varblane, U., Roolaht, T. (eds) Innovation Systems in Small Catching-Up Economies. Innovation, Technology, and Knowledge Management, vol 15. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-1548-0_7

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