Innovation and productivity among heterogeneous firms

This paper examines the links between firm innovation and productivity using the largest cross-country panel dataset assembled for this purpose to date. We use harmonized and comparable data on a total of 40,577 small, medium and large firms surveyed in the World Bank Enterprise Surveys (WBES) and provide some support for the reported patterns previously found in the innovation literature. Our results indicate that estimates from studies using cross-section data may be upward biased but nevertheless, innovative firms are significantly and economically more productive in both the manufacturing and services sectors.