This paper estimates the effects of innovations on productivity growth and the productivity elasticity of R&D capital. Firms need to introduce or improve products or production processes over time first to satisfy market needs, second to cope with increased competition from diffusion phenomena....

By exploiting a rich firm level data-base, this paper presents novel empirical evidence on the effect of process and product innovations on productivity, as well as on the role played by R&D and fixed capital investment in enhancing the likelihood of introducing innovations at the firm level....