What Explains the Evolution of Productivity and Competitiveness? The Innovation Link

Abstract

This paper addresses the recent evolution of productivity and competitiveness in Catalonia and their links with the innovation activity of firms. Firstly, it summarizes the evolution of productivity, competitiveness, firms' strategies and the state of innovation. A slowdown in productivity growth and increasing revealed difficulties in some world markets are real, and the weakness of innovation may be a reason. The paper then quantifies some of the links between innovation, productivity and competitiveness. Innovation has a positive impact on productivity and competitiveness. First of all, innovation expenditures induce cost advantages and these cost advantages are a significant explanation for firms' exports. Furthermore, product innovation helps exports, too. Moreover, R&D activities in Catalonia benefit from high spillovers, and productivity impact is even higher when firms develop R&D activities outside as well. Despite all this, the current level of innovation expenditure is comparatively low and shows signs of lack of dynamism. Firms need to switch from the current equilibrium to the requirements of the coming years.