Social Sciences & Humanities Open 6 (2022) 100330

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Social Sciences & Humanities Open

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Regular Article

Effects of innovative effort on different components of productivity:

Evidence for the Colombian manufacturing industry
Fernando Barrios Aguirre
Faculty of Administrative, Economic and Financial Sciences, Fundacion Universitaria del Area Andina, Colombia

A B S T R A C T

This document focuses on estimating the effect of innovative effort on productivity when it is disaggregated in terms of productive technical efficiency and other
components associated with demand and unit input costs. These components are developed and estimated from panel data. I show that demand characteristics are the
elements where the innovative effort affects in greater proportion. Thus, if the objective is to increase physical productivity, a strategy would be to increase by 1%
amounts invested in internal R& D, technology transfer, and technical assistance, and consulting. Thus, the physical productivity (TFPQ, as named in productivity
studies) would increase between 0.04% and 0.07%. The increase of amounts in the marketing of innovations, internal R & D, and the technical assistance, and
consulting would increase the characteristics of demand between 0.40% and 0.43%; finally, increasing the acquisition of machinery and equipment by 1% for the
promotion of innovation would generate a reduction in input costs between 0.07% and 0.05%. These results will be analyzed from the annual manufacturing survey
(EAM, as it is named in Colombia) between 2003 and 2012 and the surveys of innovation and technological development for the manufacturing industry (EDIT, as it
is named in Colombia) provided by the DANE between 2008 and 2012.

1. Introduction efficiency based on the estimation of the production function co­

What is the effect of the innovative effort on productivity, when it is
disaggregated in terms of productive technical efficiency and demand?
The innovative effort, the amount of resources allocated to activities that
promote novelties or improvements in products and processes, is widely
recognized as an important source of technological change and pro­
ductivity. However, the theoretical studies that analyze the relationship
between productivity and innovative effort have been based on the
vision of revenue productivity, not on its disaggregation and the total
amount of research and technological development. The technical effi­
ciency and demand factors should be affected in different ways by the
decision to innovate. What explains these differences? Answering these
questions is important to highlight how innovation processes and
innovative efforts facilitate how firms respond to changes in the envi­
ronment, efficiency and demand, through investments in their efficiency
and appeal to demand.
Recent research on productivity points to three components of total
factor productivity (TFPR,as named in productivity studies): physical
productivity or technical efficiency (TFPQ), costs per compound input,
and demand characteristics (Hsieh and Peter (2009) Melitz and Otta­
viano, 2008; Hsieh and Peter (2009, 2014); Foster et al., 2008; Bar­
telsman et al., 2013; Haltiwanger, 2016). In this research, this
framework is used to study the relationship between innovative effort
and the different components of a firm’s productivity, including physical
efficients and a price index; costs per input, and changes in the price
level from the calculation of demand characteristics. We implement
econometric models with grouped data, based on a sample of the EAM
and EDIT surveys between 2008 and 2012.
The decomposition proposed in the literature has been used to isolate
the different margins of productivity in the data, but it has not focused
on performing an analysis of the effect of technological innovative effort
on productivity fundamentals. This research studies the relationship
between innovative effort and productivity with a more detailed design,
disaggregating both the amounts allocated to innovation and the fun­
damentals of productivity. The results show that differences in demand
characteristics are the elements where the innovative effort affects in
greater proportion. Depending on the specification considered, we find
that, by pooled two stages least squares model, a high percentage of the
variation in the fundamentals of productivity can be attributed to the
differences in the innovative effort, when controlled by the lag of the
fundamental. This result suggests that the differences in TFPR product of
the innovative effort are mainly due to demand characteristics, instead
of costs or TFPQ.
The results of disaggregating the innovative effort show that the
values invested in internal R&D increase total revenue productivity
through an increase in technical efficiency, demand characteristics, and
unit costs per compound input. The values invested in internal R&D and
transfer of technology increase physical productivity, while the values

E-mail address: fbarrios4@areandina.edu.co.

https://doi.org/10.1016/j.ssaho.2022.100330
Received 25 June 2020; Received in revised form 28 April 2022; Accepted 26 August 2022
2590-2911/© 2022 The Author. Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
F. Barrios Aguirre
invested in training generate negative effects in this component. In the
case of demand characteristics, the values invested in activities related
to internal R&D, marketing, and technical assistance in technology, in­
crease their dynamics, while the values invested in engineering and
industrial design, information technology and communications, and
acquisition of machinery and equipment due to the adjustment of new
capital decrease the demand characteristics. Costs per compound input
are only affected by the amount invested in internal R&D and machinery
and equipment.
I calculated the sum of all significant coefficients (without changing
the sign of the negatives) and the sum of all coefficients regardless of
whether they are significant (without changing the sign of the nega­
tives). Thus, It examined a portfolio inferior to that of investing in only
the positive parameters, which served as a contrast with the optimal or
desired portfolio. Increasing the fundamental productivity percentage
by increasing by 1% the significant amounts, compared to not increasing
any of them implies that to increase physical productivity would be to
increase by 1% the amounts invested in internal R& D, technology
transfer, and technical assistance, and consulting. Thus, TFPQ would
increase between 0.04% and 0.07%. The increase of amounts in the
marketing of innovations, internal R & D, and the technical assistance
and consulting would increase the characteristics of demand between
0.40% and 0.43%; finally, increasing the acquisition of machinery and
equipment by 1% for the promotion of innovation would generate a
reduction in input costs between 0.07% and 0.05%. This would consti­
tute an important business policy within a firm when it is deciding what
to invest in to promote technological development and productivity.
Increasing the amount invested in training by 1% decreases the TFPQ
by 0.02%. In the case of demand, there is a decrease between 0.49% and
0.52% if the firms increase by 1% each amount of acquisition of ma­
chinery and equipment, information and communication technologies,
engineering and industrial design, and training. Costs would increase
between 0.11% and 0.20% by 1% increase in information and commu­
nication technologies and internal R & D activities.
Resorting to this strategy, the significant coefficients that contribute
most to the increase of the fundamental are those associated with de­
mand characteristics, followed by the costs per unit inputs.
The framework of this research uses a production function and the
inverse demand proposed in Foster et al. (2008) and Hsieh and Peter
(2009, 2014) in which a monopolistic competitor produces using a
composite input. The choice of this structure is guided by its promi­
nence, manageability, and empirical viability. To be more precise, we
measure efficiency based on the coefficients estimated by the method­
ology of Ackerberg et al. (2006), developed in De Loecker and War­
zynski (2012 2012). Then, there are the unit costs per compound input
based on the minimizing behavior of costs that are assumed for firms;
also, demand characteristics are captured by the effects of the quantity
of production on prices, instrumented by TFPQ. Finally, we measure the
innovative effort as the total amount in activities of innovation and
technological development, disaggregated into nine categories related
to the innovative effort in products and processes.
The incorporation of these characteristics in the theoretical and
econometric model generates several additional ideas. The majority of
studies of the relationship between productivity and innovative effort
have been based on revenue productivity and not on its disaggregation .1
I calculate a Tornsqvist price index based on the production and the
prices of the goods produced in each firm, to calculate TFPQ, indepen­
dent of the total of products that firms sell. This framework is also car­
ried out with a new metric of productivity fundamentals and amounts
1
This measure of correction of TFP was proposed in Foster et al. (2008).
Since then, authors such as Hsieh and Peter (2009), 2014), Eslava et al. (2004,
2013), and Haltiwanger (2016) have developed methodologies and distinctions
of the TFPR in TFPQ and price level, as an effective measure for the total
productivity of factors without price distortions.
2
Social Sciences & Humanities Open 6 (2022) 100330
related to R& D expenditures, which can be obtained and developed
from the particularity of the data coming from the Colombian
manufacturing industry. In this order, and solving the problem of double
causality and selection bias, econometric models with panel data are
used to find the relation between fundamentals and innovative effort.
The rest of the article is structured as follows. Section II reviews the
related literature. Section III is the description of the data. Section IV
uses the structure of the model to propose a method to estimate fun­
damentals. Section V describes the results of the statistics and the esti­
mation. Section VI concludes.
2. The objective and research gap
The objective of this research is to examine the effect of the inno­
vative effort on productivity, when it is disaggregated in terms of pro­
ductive technical efficiency and demand. The results and objectives of
this research contribute to the solution of a gap in research that had not
previously been evaluated. The theoretical studies that analyze the
relationship between productivity and innovative effort have been based
on the vision of revenue productivity, not on its disaggregation and the
total amount of research and technological development. It is important
because innovation processes and innovative efforts facilitate how firms
respond to changes in the environment, efficiency and demand, through
investments in their efficiency and appeal to demand.
Although there are approaches in the literature in the approximation
of productivity by income, part of this research covers the answers on
costs and the perception of quality in the demand by the consumer.
Developing the channel through which the innovative effort generates
effects on the disaggregated components of productivity is important to
recognize the role of supply chain and logistics performance manage­
ment from supply and demand chain management, where each
manufacturing product has its supply chain strategy and the goal is to
ensure that revenue increases with cost decreases (Balakannan et al.,
2016). It is also essential to open this path in the literature review, since
in this global competitive market, modern manufacturing industries
move towards improving production by reducing costs without
compromising customer satisfaction. To reduce the cost without sacri­
ficing the quality of the product, some main components of the product,
which are modified or incorporated through the innovative effort, have
a great scope to achieve the good feedback from the customers in terms
of performance (Nallusamy, Kumar, & Modak, 2018).
3. Related literature
The study of productivity has expanded and transformed as infor­
mation has been found at the level of microdata and new theories have
developed on the relationship between productivity and innovation. The
existing research suggests a series of explanations of candidates to infer
productivity differences from a more detailed interpretation of the
fundamentals.
The relationship between the innovative technological effort and the
total factor productivity has not been addressed decomposing the latter
into its fundamental components. Recent literature has focused on the
decomposition of productivity and empirical studies generated between
the total amount in R& D and Revenue productivity.
The literature has developed several instruments to explain the
functioning of the productivity dynamics in firms, including the
distinction between total Revenue productivity (TFPR), total physical
productivity (TFPQ), costs per compound inputs, and demand charac­
teristics (Melitz and Ottaviano, 2008; Hsieh and Peter (2009, 2014);
Foster et al., 2008, Bartelsman et al., 2013, Haltiwanger, 2016); in terms
of product quality and profit margins (De Loecker & Warzinsky, 2012;
De Loecker et al., 2016). The literature focuses on the explanation of one
or several instruments, depending on the importance of the component
and the availability of the calculation, and has been applied in deter­
mining the impact of trade liberalization (Eslava et al., 2004, 2013;
F. Barrios Aguirre
Levinsohn, 1993). Abraham et al., 2009), privatization in profit margins
(Konings et al., 2005), among others.
An appropriate methodology for calculating productivity is found in
Ackerberg et al. (2006), which show how specific profit margins can be
generated by firms, to obtain the unit costs per compound input. I use
the proposal of Foster et al. (2008) to show the decomposition of TFPR in
its fundamentals and develop a general theoretical model to obtain each
of the productivity factors and estimate them based on disaggregated
information on prices, production, sales, and inputs by firms. In this
investigation, i assume a monopolistic competitor that produces a
composite input. This interpretation, added to the availability of data,
allows us to infer both the costs per compound input and the demand
characteristics.
Related to the incorporation of prices in the model, two types of
productivity analysis have been developed. Literature has tried to
disaggregate revenue productivity into technical efficiency and demand
factors. The starting point is the functions of income and costs by es­
tablishments and the exploitation of the information derived from the
solutions stemming from the problem of minimizing costs and maxi­
mizing profits. There are also studies where firm-level prices are not
taken into account, and measures related to productivity, income per
unit, and residual can not be estimated, as well as a set of studies in
which the firm prices, and in that case, the measures of productivity
disaggregated in TFPQ, prices, profit margins, demand characteristics
and costs per compound input can be constructed (Haltiwanger, 2016).
This research is part of this set of studies since the available information
allows prices to be inferred to identify productivity fundamentals.
Empirical research that allows us to identify the effects of innovative
effort on productivity uses innovation results (R&D expenditures,
innovation counting, patents) to measure innovative effort, with posi­
tive results on revenue productivity (Griffith et al., 2006; Hall, 2011;
Mohnen & Hall, 2013; Peters et al., 2014), sales (Arbelaez, Parra, &
Mónica, 2011; Fernandez-Arias, 2014; Goedhuys, 2007b; Langebaek,
Andrés, Vásquez, & Diego, 2007), the export market of firms (Aw et al.,
2007) and stochastic productivity by TFPR (Aw et al., 2011; Doraszelski
& Jaumandreu, 2013; Olley & Pakes, 1996) .2 Also, a part of the liter­
ature has recently focused on the use of data from innovation surveys,
based on structural models. In some, a combination of the theoretical
and empirical aspects is made in which the particular characteristics of
product and process innovations and income productivity are identified
(Crepon et al., 1998; Parisi et al., 2006; Jaumandreu & Mairesse, 2015),
separated into technical efficiency and marginal costs or using average
costs and production as dependent variables (Jaumandreu & Mairesse,
2013a, 2013b; Cassiman & Vanormelingen, 2013).
This research differs from the rest of the literature because it explores
the relationship between innovative effort and productivity using two
disaggregations, based on the available information and solving the
possible problems of this causal relationship. The first disaggregation
refers to the amount allocated to the innovative effort, that is, to
improve or develop innovations of products and processes. Based on
information from the EDIT, nine characteristics related to innovative
efforts in products and processes are explored and are added based on
the relationship between technology adoption, internal and external
R&D activities, and marketing, engineering, and industrial design. This
differentiation will be important to define the significative investment
portfolio in R&D by firms. The second disaggregation will be in the
fundamentals of productivity in TFPQ, costs per compound input, and
2
In Jaumandreu and Mairesse (2015), and Peters, Roberts, Vuong, and
Fryges (2013) is a detailed review of this literature. In particular, the authors
propose a historical classification, corresponding to the way of approaching
productivity and innovation and the management of data from the paper by
Crepon et al. (1998). On the other hand, Van Beveren and Ilke (2010) reviews
the main methodologies to estimate the total productivity of the factors in a
parametric and semi-parametric way.
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Social Sciences & Humanities Open 6 (2022) 100330
demand characteristics. This research starts from what was found in
revenue productivity by Foster et al. (2008) where TFPR will reflect a
combination of demand, cost and, productivity (TFPQ) factors, and uses
different methodologies through fundamentals to obtain them.
Making this distinction is important because the typical empirical
measure used differs from the theoretical concept of productivity that
reflects production per unit of composite input, taking into account the
production technology related to production inputs. This measurement
problem has potentially important theoretical implications since firm-
level prices are likely to be endogenous so these alternative measures
can have very different properties.
While the TFPQ reflects technological factors, the TFPR probably
reflects both the technology and the demand factors. It can reflect these
factors in complex ways through endogenous prices that raise the
question of what measure is preferable as a measure of firm perfor­
mance, marginal costs, and idiosyncratic demand characteristics.
Several authors propose a distinction between TFPR and physical pro­
ductivity TFPQ (Hsieh and Peter (2009); Melitz and Ottaviano, 2008;
Foster et al., 2008; Hsieh and Peter (2009, 2014), Bartelsman et al.,
2013; Haltiwanger, 2016). For these authors, the TFPQ is a measure of
technical efficiency that is derived from the production function and the
TFPR is the price of the firm multiplied by the TFPQ. The TFPR measure
could change according to the combination of factors of productivity,
demand, cost, and elasticity that disaggregate each one of the mentioned
authors.
The use of product-level price and quantity data on outputs and in­
puts for plants enables overcoming a host of conceptual, measurement,
and estimation challenges in the literature related to the distinction
between TFPR and TFPQ. (Eslava & Haltiwanger, 2018). In some cases,
the measurement has brought together strands of the literature that have
either focused on the relative roles of broadly defined productivity vs.
wedges using data on revenue and input expenditure or on the roles of
cost vs. demand-side components of productivity using data on prices
and quantities of output. Findings show that the literature using just
price and quantity data on output understates the role of cost and pro­
ductivity factors in accounting for sales volatility. (Eslava & Halti­
wanger, 2018). In another case, the standard productivity measures are
highly dependent on implicit demand system assumptions and probably
dramatically understate the relative productivity of the largest firms
(Hottman, Redding & WeinsteinDavid, 2016).
Firm-level prices make it possible to decompose revenues into price
and quantity, which in turn makes it possible to produce measures of
physical productivity or TFPQ, costs per compound input, and demand
characteristics. On the other hand, having the price and the variation of
the quantity, the role of the factors on the demand side has also been
investigated and explored. Interestingly, the evidence that is emerging
suggests that differences in the size of firms and the dynamics of business
growth are driven more by differences in demand than differences in
TFPQ (Eslava & Haltiwanger, 2018; Haltiwanger, 2016; Hottman,
Redding & WeinsteinDavid, 2016; Jaumandreu & Mairesse, 2010). The
latter is important, but the differences in demand are even more
important. In this sense, the exploration of the factors on the demand
side will be interesting, since these frictions and distortions are poten­
tially different from those that intervene in secondary factors of costs
and supplies, such as TFPQ.
The disaggregations allow arguing how the innovative effort acts in a
differentiated way on the fundamentals of productivity. Likewise, to
avoid problems related to the selection bias of the inverted amounts and
the double causality between innovative effort and productivity, the
forecasts of R&D amounts categories are used (Crepon et al., 1998) and
the lag of each fundamental as an independent variable (Rouvinen,
2002). The econometric model is based on the use of panel data between
2008 and 2012 for the Colombian manufacturing industry, taking into
account three dependent variables (fundamentals) and different inde­
pendent variables related to the innovative effort.
F. Barrios Aguirre
4. Description of data
This research uses an unbalanced panel of firms between 2007 and
2012, based on information from the Survey of Development and
Technological Innovation - EDIT, in versions IV to VI, and the results of
the Annual Survey Manufacturing -EAM.
EAM includes information on the productive performance of indus­
trial establishments with ten or more employed persons or a production
value higher than that stipulated for the year in which each version of
the survey was collected. From the EAM information, we extracted
productive performance variables such as value-added, fixed assets, the
number of employees, and materials by establishments. The data anal­
ysis was compacted to firm-level from the establishment level, to be able
to compare them with EDIT information. Additionally, the calculation
exercise of TFPR, TFPQ, and prices was carried out through EAM, this
time using annual data from 2003 to 2012.
EDIT applies to all firms included in EAM directory and its objective
is to characterize the dynamics of technological development in the
Colombian manufacturing firms, in terms of intensity and trajectory of
the innovation activities and technological development, assess the
impact of public policy instruments, and establish the types of profiles
occupational applied in the different areas or departments of firms.
Since the samples of the EAM and the EDIT are the same, the two
surveys can be integrated. Given that EDIT data are collected every two
years, the panel includes three temporary observation periods
(2007–2008, 2009–2010, and 2011–2012), excluding firms with
incomplete information or with extreme values in the variables of in­
terest. 3 From here, I get the disaggregated information of the innovative
effort. The grouping of the data is done using three moments
(2007–2008, 2009–2010, 2011–2012) in which the average of the fun­
damentals and the sum of the counts of innovations, and the amounts
invested in related activities with product and process innovations is
used.
The importance of our database lies in the fact that EAM permits
construction price deflators at the plant level for inputs and products
that allow distinguishing TFPR from TFPQ and prices, based on the
relationship between the value produced and the quantities produced. A
disadvantage of other investigations is that studies for other countries
have typically calculated TFPR confusing the technical efficiency at
producer level and prices. In this sense, estimated effects of innovations
on productivity “..could correspond to the fact that we are measuring
revenue, deflated by industry deflators, not by individual firm deflators”
(Griffith et al., 2006). Also, the information of the EAM, allows to build
price indices for products, materials, and energy at the plant level,
through quantities sold, obtained, or consumed, and the purchases or
sales that are reported. This represents an advantage over other data­
bases because the use of more aggregate price deflators is a common
source of measurement errors.
For the empirical analysis and the construction of the fundamentals
of productivity I will use the following annual variables from the Annual
Manufacturing Survey (EAM) and the Survey of Technological Innova­
tion and Development (EDIT):
From the Annual Manufacturing Survey (EAM), information was
extracted on the variables quantities produced, production value, con­
sumption of raw materials, fixed assets, employed personnel, energy
consumption, and years of operation. Based on these indicators and the
proposed methodologies, TFPQ, TFPR, Markups, Demand characteris­
tics and price indices, and market dimensions are calculated.
From the Technological Innovation and Development Survey (EDIT)
information was extracted on product innovations categories, process
3
To avoid measurement errors, the previous versions of the EDIT (II and III)
were not used in the construction of the panel, because there are wide differ­
ences in the design of forms and in the way of collecting the information with
regarding subsequent innovation surveys.
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Social Sciences & Humanities Open 6 (2022) 100330
innovations, number of patents, and spending categories in innovation
activities (ACTI) related to product and process innovations. Based on
the categories of product innovations, an index of product innovations is
built, which measures the novelty of the product innovations intro­
duced. This indicator is proposed by the Colombian Observatory of
Science and Technology and the National Planning Department .4
Likewise, the demand push, which shows the importance of improving
the quality of goods or services and expanding the range of goods or
services offered, obstacles to innovation, appropriability in terms of
strategic and formal protection of intellectual property rights, foreign
capital, and public, commercial and ow resources to promote innovation
are taken into account for the realization of econometric models.
5. Empirical strategy and model estimates
In this section, I introduce the methodology that I used to infer TFPR,
TFPQ, average costs by compound input and demand characteristics,
based on the information available. First I will show how from the
proposal of Foster et al. (2008) different components of TFPR can be
obtained.
To achieve this purpose, a model that interrelates the effort of
innovation activities and the productivity of firms is used as a method­
ological tool. The innovative effort is calculated based on the amount
invested in activities aimed at product and process innovations. This
measure is more homogeneous than the typologies of innovation counts
in the design of an economic policy strategy since one could infer with
the results the impact of each amount invested (in Colombian pesos) on
the variation of each of the productivity components. Thus, a portfolio
could be designed that significantly contributes to the improvement of
productivity fundamentals.
For the decomposition of the total factor of revenue productivity in
its components, I will use a static version of a model of firm behavior.
The firm optimally chooses the quantities of inputs and therefore the
quantities of output to be produced and therefore prices at which
products are offered given a demand function. This is obtained by
assuming the physical productivity of firms (TFPQ), prices, and demand
effects as given. Starting from the production and inverse demand
functions proposed in Foster et al. (2008) and Hsieh and Peter (2009,
2014), in which a monopolistic competitor produces Yit using a com­
pound input, I have that:
Yit = Ait X γit (1)
Is the production function and,
Pit = Dit Y −it ε (2)
Is the demand function.
Where Yit is the production at the firm level, Xit is the compound
input of the firm ,5 Pit is the price of the product that sells the firm, Ait is
the total productivity of the physical factors of the firm (TFPQ) and Dit is
a demand characteristic or quality of the firm, which is interpreted as a
residual effect of prices. Also, this can be understood as a research and
development process within the demand profile, which generates con­
sumers demand more of the product.6 ε y γ are parameters associated
4
The Colombian Observatory of Science and Technology obtains this index
based on the innovations of introduced products. It is calculated from the dif­
ference between 1 and the quotient of the division of the number of innovations
obtained from each type on the total sum of innovations obtained by national
firms. This is an attempt to capture the difficulty of innovating for the inter­
national market.
5
The compound input consists of the fixed assets, the work used in the
production process. Specifically:Xγit = Kαit Lβit
6
As will be developed later, this residual effect of prices contains both effects
from the idiosyncratic demand of the product and distortions in the income in
the firms.
F. Barrios Aguirre
with the price elasticity of demand and the type of return to scale of
firms, respectively.
In equilibrium:
Pit = Dit A−it ε X −it γε (3)
TFPQ and TFPR are defined as:
TFPQit = Ait (4)
TFPRit = Pit Ait = Dit A1−it ε X −it γε (5)
From the maximization of the firm profits and assuming a cost per
unit of compound input equal to cit, the conditioned demand of factors
for Xit is equivalent to:
[ ε]
1 β
γ(1 − ε)Dit A1−it 1− γ(1− ε)
Xit = (6)
cit
Thus, revenue total factor productivity (TFPR) can be decomposed
into:
[ ] 1− γ
cit γ(1 − ε)Dit A1−it ε 1− γ(1− ε)
TFPRit = (7)
γ(1 − ε) cit
5.1. Measuring TFPQ as a measure of technical efficiency
To calculate the Physical Productivity, related to the efficient way to
combine inputs, it is necessary to clean the quantities produced and the
inputs used from prices. For this, the quantities of production, and fixed
assets are divided by a deflator relative to the general price index of the
producer and the price index of the products of firms in the sample. In
the previous section, we have defined Xit with a compound input. For the
calculation of TFPQ, this compound input contains the number of em­
ployees and a proxy of the stock of capital. It is to note, that when trying
to control for prices, Ait is interpreted directly as the physical total factor
productivity. For the calculation of productivity, the methodology pro­
posed by Ackerberg et al. (2006), developed in De Loecker and War­
zynski (2012 2012) will be followed.
The total factor productivity (TFP) would be obtained through the
estimation of a capital-labor production function that takes into account
the level of the product, the level of capital, the total hours of work, the
levels of use of materials, and a productivity shock. The measurement of
the TFP would be obtained from the residue of the estimate, which in­
corporates the factorial elasticities estimated for capital, labor, and
materials. Because productivity shocks can be correlated with the in­
gredients of the production function (ie capital, labor, and materials), it
is necessary to implement these variables or to use alternative proxy
methods such as the one proposed by Ackerberg et al. (2006).
To develop the empirical identification of the coefficient of the
production function, the literature has focused on the proxy methodol­
ogies of Olley and Pakes (1996), Levinsohn and Petrin (2003) and
Ackerberg et al. (2006). Usually, in Olley and Pakes (1996) and Lev­
insohn and Petrin (2003) some of these measures calculate the pro­
duction function and the total productivity of the factors, but they suffer
collinearity problems that call into question the methodology. In this
sense, Ackerberg et al. (2006) propose an alternative methodology that
makes use of the ideas of Olley and Pakes (1996) and Levinsohn and
Petrin (2003) but solves the problem of collinearity.
The difficulties faced by those who try to estimate these functions lie
in the possibility of observing all the possible inputs, the simultaneity,
and the dilemma between income and quantities in the calculation of
production. For the Colombian case, it is possible to obtain information
about the production of the firms as well as the labor, the consumption
of energy, and materials; however, only the book value of capital is re­
ported, which may not be the most appropriate concept. In addition, we
would incur a problem of endogeneity where the coefficients of the
Ordinary Least Squares (OLS) estimates would be biased.
5
Social Sciences & Humanities Open 6 (2022) 100330
Faced with this problem, two alternatives have been developed to
identify production functions. A set of techniques follows the dynamics
of panel data literature, for example, Chamberlain (1982), Arellano and
Bover (1995), Blundell and Bond (1998). The second set of more
structural techniques are those proposed by Olley and Pakes (1996),
Levinsohn and Petrin (2003) and Ackerberg et al. (2006) developed
from observed inputs that control unobserved productivity shocks. This
last set of techniques is those that I will use to calculate the productivity
in the development of this research. Starting from the production
function
Yit = Ait X γit (8)
With the compound input, coming from capital and labor:
β
X γit = K itk Litk (9)
Ait = eβ0 +εit (10)
Taking logarithms of the production function and using equations
(10) and (11), we have:
yit = β0 + βk kit + βl lit + εit (11)
Being εit = νit + μit. In this equation, μit are productivity shocks that
can not be observed either by the firm or by the econometrist, while ωit is
observable or predictable productivity shocks by the firm but not by the
econometrist.
So,
yit = β0 + βk kit + βl lit + νit + μit (12)
Defining ωit = β0 + νit, we have to:
yit = βk kit + βl lit + ωit + μit (13)
To calculate total revenue productivity, it is necessary to make some
assumptions. The first consists of demand for intermediate goods mit
more flexible than the investment, such that the monotonicity condition
is maintained with observable productivity shocks, ωit. The second in­
dicates that the capital, kit, is semifixed and fixed from a previous period;
meanwhile, the labor (lit) and the materials (mit) are assumed to be
flexible and defined in the current period .7
This allows the following monotonic condition to be defined:
mit = ft (ωit , kit )(14)
Then,
ωit = f −t 1(mit , kit )(15)
Finally, it is assumed that productivity follows an autoregressive
process, that is to say, that at all times the productivity shocks result
from previous shocks, such that:
P(ωit |Iit ) = P(ωit+1 |ωit )(16)
Equation (13) is used to calculate productivity. Considering this
function, we estimate a function φ(lit, kit, mit, zit), in a non-parametric
way, with the purpose of finding an estimator of φ such that the error
term of this first stage is eliminated. Then, ωit is calculated from the
difference between the function φ calculated by subtracting the sum of
the products of the estimators by the capital and labor level. From a
second stage, ωit = g(ωit− 1) + ξit is estimated until E(ξit , βk , βl )|kit , lit− 1 ) =
0.
Depending on how I define yit (value of production or quantities
produced) it is possible to get TFPR or TFPQ. If the dependent variable yit
7
It is important to clarify that productivity is a relevant variable at the time
of demand materials and also has a monotonically increasing functional form.
These are necessary to define the conditions of monotonicity that will be dis­
cussed below.
F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

is the production value, ωit in the estimate described, it is TFPR. In equal to zero.
contrast, if the dependent variable is the quantity produced, then ωit in
the estimate described is TFPQ. All this depends on the fact that the same
5.2. Unit costs per compound input
moment conditions allow the identification of both TFPR and TFPQ.
Starting from the value of the production, one way to obtain TFPQ is
A measure for the estimation of the cost per compound input could
to take TFPR and the price level is subtracted, so LnTFPQit = LnTFPRit −
be obtained through the estimation of the profit margin, proposed by
pit, where pit the logarithm of the product price index at the plant level.
Hall (1988) who used the production data for the first time, to estimate
A methodology for calculating price indexes in production that will
markups. The gap between prices and marginal costs is, in principle,
be taken as a reference is the one proposed by Eslava et al. (2004).
used to identify the markups charged by the firm.
Product and input price indices are obtained from the calculation of a
This approach presents two problems. First, the total costs of a firm
Tornqvist index for a group of products or materials h of plant i at time t.
are difficult to determine. For example, the cost of using the capital is
The price index is calculated as:
unknown. Second, returns to scale are not observable, so it is difficult to
∑
Tornsqvistit = (WhiA )(LnPhi0 − LnPhit )(17) infer the marginal costs from average costs.
h=1 One solution is to add the assumption of cost minimizing behavior.
Being, W the share of product h in the total production, which I fix at Starting from this minimization problem, we obtain:
the same value for all years with quantities produced Q and production L = cit Xit + λit [Yit− Ait X γit ](20)
in pesos Y:
Where cit is the cost per compound input and λit is the Langrangian
PhiA *QhiA multiplier of the cost minimization problem.
WhiA = (18)
YhiA Deriving:
A procedure that allows me to obtain the growth of prices follows the δL
following steps: = cit − λit [γAit X γ−it 1 ] = 0(21)
δXit

1. For each firm a set of products that were produced at any moment δL
= Yit − Ait X γit = 0(22)
was found and the panel of products and values were balanced so λit
that in each year each firm had all its products.
2. The missing values of prices were filled in with the average values of δL
= λit (23)
the price of that product in that year. The missing value produced δYit
was filled with zero. That is, λit is the marginal cost.
3. For each firm, the weights of the set were found, averaging over all The average cost can be calculated using the first order condition
the years. This was done by adding over the years the production of with respect to Xit:
the same product to find how much the firm produced in total
throughout a certain product. Then, it was added to the products to cit = λit [γAit X γ−it 1 ] = 0(24)
know how much it produced in total over the period. Thus, the
Taking logarithms we obtain
weight of each product for that firm, constant over time, is the value
produced of that product in the period over the value produced over Lncit ≡ Lnλit + Lnγ + LnAit + (γ − 1)lnXit (25)
the period. These weights added 1.
To find the value of λit the problem of maximization of benefits of the
monopolistic producer of differentiated goods is used, with which it is
This procedure is calculated based on the equation:
obtained that:
( )
Pi,t ∑[phi,0 *qhi,0 ] phi,t Pit
Ln = ln (19) λit = (26)
Pi,t− 1 h=1
ph0 *qh0 phi,t− 1 1
1− ε

Being phi,0*qhi,0 the price of product h, within the firm i at the initial 1
moment (0). ph0*qh0 is the price of product h throughout the industry Lnλit = LnPit − Ln
1− ε
(27)
and in the initial moment. This is used to find the share of product h in
total production. Replacing the value of marginal costs in the function of average
The index calculates the growth of prices, but is not a price indicator. costs, we have to:
A procedure that allows me to obtain a price level index consists, based 1
on the information obtained, of developing the following steps: Lncit ≡ LnPit − Ln + Lnγ + LnAit + (γ − 1)lnXit (28)
1− ε

1. A price index was produced for each firm in its initial year with a
value of zero (in logarithms).
2. The Tornqvist price index was built for the price changes but with the
constant weights built-in point 3 and with the prices they filled in
point 2.
3. Finally, the price levels of the second year were constructed, in
logarithms, as the initial plus the Tornqvist index, then the third year
as that price level of the second plus the corresponding tornqvist
index, and so on. This value was subtracted from the natural loga­
rithm of the general price index of the manufacturing industry.
This indicator is valid to obtain the price index because it is the in­
direct method most used in calculations of total factor productivity;
additionally, because results of the Törnqvist index accept quantities
Lncit ≡ LnTFPRit − Ln
1
+ Lnγ + (γ − 1)lnXit (29)
1− ε
Where the last term can be calculated from the observed inputs, Kit y
Lit, the estimated coefficients of the production function, and the elas­
ticity of demand. The calculation of this last component will be dis­
cussed in the next section.
5.3. Demand characteristics
Having estimated TFPQ, we use the other revenue productivity, the
price, to estimate the idiosyncratic levels of demand facing each firm.
We use these estimates of demand, along with our measures of physical
productivity, to obtain the price elasticity of demand. It is estimated
based on the linearization of equation (2):

6
F. Barrios Aguirre
LnPit = LnDit − εlnYit (30)
where:
LnDit = φ + φit (31)
where φ are autonomous elements that do not vary through plants, c and
φit defines the particular idiosyncratic effect coming from the particu­
larities of the plant.
Thus:
LnPit = φ − εlnYit + φit (32)
Of course, the estimate using ordinary least squares (OLS) could lead
to positively biased estimates of price elasticity, since producers can
respond optimally to demand characteristics by raising prices. This
would create a positive correlation between the error term, φit and Yit.A
solution to this is the proposal of Foster et al. (2008), applied for
Colombia by Eslava et al. (2004, 2013) and Kugler et al. (2009) using as
a proxy of the influence of supply (cost) on prices, the levels of Ait or
TFPQ at the plant level. These include idiosyncratic producer technol­
ogies (physical production costs) and as such, they must have an
explanatory capacity on prices. Further, they are unlikely to correlate
with specific demand characteristics.
Because the demand characteristics are positively correlated with the
product and the prices, the inverse demand equation will be estimated
using TFPQ obtained as an instrument for production because, by con­
struction, this variable is positively correlated with the product, but not
expected to be correlated with demand characteristics. The previous
exercise will be carried out assuming that the elasticity of demand is the
same for the entire manufacturing industry (Eslava et al. (2004; 2013)).
5.4. Measuring innovation efforts and estimating their effects
The methodology will focus first on the measurement of each
component of TFPR resulting from equation (7) and later found in the
effects of the innovative effort on products and processes on the revenue
productivity components. The different productivity performance vari­
ables will be related to the measures of innovative effort in products and
processes and other controls using the following data regression panel:
x = (TFPQ, c, D)(33)
xit = γ 0 + γ1 Fit− 1 + γ 2 Zit− 1 + εit (34)
where F represents the innovative effort coming from the product in­
novations of the firm i in the previous moment, t-1. Z represents the
innovative effort coming from the technological activities related to
process innovations of the firm in the previous moment, t-1. The pa­
rameters of interest are γ 1it, and γ 2it.
From the Survey of Innovation and technological development for
the Colombian manufacturing industry, EDIT, the value invested by the
firm in the following technological and innovation activities for the
introduction of new or significantly improved goods or services and/or
the implementation of new or significantly improved processes, new
organizational methods or new marketing techniques are obtained.
According to the activity to which resources invested in this research are
destined, each value will be associated, to a greater extent, with one or
both categories of technological innovations, as follows:
1. Internal R & D activities: (Product Innovations) Refers to systematic
creation works, carried out within the firm, to increase the volume of
knowledge and its use to devise new or improved services, goods, or
processes.
2. Acquisition of external R & D: (Product Innovations) Acquisition or
financing of the same activities as those indicated above, but carried
out by other public or private organizations. (includes research
organizations)
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Social Sciences & Humanities Open 6 (2022) 100330
3. Innovation Marketing: (Product Innovations) Introductory activities
in the services market, new or significantly improved goods. Includes
market research and launch advertising.
4. Engineering and Industrial Design: (Product Innovations) Change in
methods or patterns of production, quality control, and preparation
of plans and designs aimed at defining technical procedures, neces­
sary for the production or implementation of new services, goods, or
processes or significantly improved in the firm.
5. Acquisition of machinery and equipment: (Process Innovations)
Machinery and equipment, specifically purchased for the production
or implementation of new or significantly improved services, goods,
or processes (Does not include those registered in internal R & D)
6. Information and telecommunications technologies: (Process In­
novations) Acquisition, generation, outsourcing, or leasing of ele­
ments of hardware, software, and/or services for the handling or
processing of information, specifically intended for the production or
implementation of services, new or significantly improved goods or
processes.
7. Specialized training and qualification: (Process innovations)
Training at master and doctorate levels, and training that involves a
significant degree of complexity (requires a highly specialized
trained staff).
8. Technology transfer: (both) Acquisition or use under license, of
patents or other intellectual property registers, of non-patented in­
ventions and technical and other knowledge; from other firms in
organizations to use in the innovations of your firm. It includes
know-how transfer modalities, defined as those related to non-
written knowledge and not protected by patents.
9. Technical assistance and consultancy: (Both) Advice for the use of
technological knowledge applied through the exercise of an art or
technique, specifically contracted for the production or imple­
mentation of services, goods, or new or significantly improved pro­
cesses. Includes market intelligence, and technology watch.
For policy design, these measures of innovative effort are very
important for two reasons. First, the parameters associated with the
amount invested in each activity related to the innovative effort are
more homogeneous than the typologies of innovation counts in the
design of an economic policy strategy since one could infer with the
results the impact of each amount invested (in pesos) on the variation of
each of the productivity components. Thus, a portfolio could be
designed that significantly contributes to the improvement of produc­
tivity fundamentals. Thus, an increase of 1% in the amount invested in
the R & D activity related to a specific category generates a change in the
logarithm of the physical productivity, costs, or demand characteristics.
The second is that the results generate a policy discussion. I aim at
inferring whether investing in activities that encourage process in­
novations has larger effects on the variation of TFPQ, the costs, and the
demand characteristics, than the investment made in activities that
encourage product innovations.
Several considerations must be taken into account in the estimation
of model. The first is the double causality between the innovative effort
and the fundamentals of productivity: more investment for the devel­
opment of innovations affects physical productivity, demand charac­
teristics, and costs per compound input, but firms with a better
performance in physical productivity, cost reduction or demand char­
acteristic generate greater resources to invest in innovation. The second
is the possibility of selection bias because only a fraction of the popu­
lation of firms innovates or makes and reports investments in innovation
activities.
To address selection I resort to do the methodology proposed in
Crepon et al. (1998), obtaining a forecast of innovative effort measures
through the Heckman selection procedure with grouped data (pool).
Thus, the final estimate, with the different productivity components, is
obtained for the whole group of firms and not only for those that report
investment data in innovation. This occurs under the assumption that all
F. Barrios Aguirre
firms make some innovative effort, but from a certain limit firms can
provide us with explicit information about this effort and quantify it;
hence, the importance of not excluding them from the model and pre­
dicting the innovative effort of these firms(Griffith et al., 2006) .8 For the
case of equations that include the amounts related to innovation activ­
ities, the Crepon, Duguet, and Mairesse (CDM) model considers the
following determinants: the conditions of appropriability, the push of
demand, the international market, cooperation and obstacles to inno­
vation and public funds for the development of improvements or nov­
elties are considered good instruments since these variables are
activated when firms engage in research and technological development
activities; According to CDM model, this prediction in the amounts of
R&D expenditures could become determinants of the innovations of
products and processes, whose elements would finally affect the pro­
ductivity components.
As solution to the problem of endogeneity, the lag of the amounts
invested in R& D is an instrument (endogenous variable from the pre­
vious period) to the lags of the product and process innovation counts
and independent variables in a direct pooled OLS regression. In econo­
metrics, it is common for researchers to use observational data in the
applied social sciences to delay explanatory variables, to clean their
endogeneity estimates. The purpose is to eliminate the correlation be­
tween the explanatory variables and the error term, a problem that
prevents unraveling the causal relationships of simple correlations and
incorporates dynamic effects in the model. Likewise, the lagged
dependent variable will be used to alleviate the threats in the causal
identification without requiring any other data than that available in the
data set. In this sense, the idea is that, although innovative effort can
affect productivity and vice versa, it is less likely that innovative effort
can influence past values of productivity, so they could be used as a
control variable in the equation main for the fundamentals .9
Also, several authors have suggested that the structure of the delay
and the effects of R & D on productivity can be “ … very variable, both in
time and magnitude …” (Griliches & Mairesse, 1984, p.369). There is
strong evidence that the structure of delay is approximately in the form
of a bell, with an average delay of four to six years, so productivity can
adjust to the shock with a lag.
This research will use the basis of the model (CDM) of Crepon et al.
(1998) in which firms traditionally decide to participate or not in the
realization of innovation activities. Once this decision is made, the firm
determines the amount of resources that are invested in these activities,
that is, the innovative effort. The result of the innovative effort is eval­
uated from the impact of investment in innovation on the production of
product or process innovations. This is recognized by Pakes and Gri­
liches (1980) as the Knowledge Production Function. Finally, the effect
of the production of innovations on the productive performance of the
firms is verified, in this case, the disaggregated productivity. The
equations for the probability of incurring amounts and the logarithm of
amounts are estimated jointly using a Heckman selection procedure,
using a pooled data model (pool), including the inverse of mills as a
regressor to correct the selection bias. Thus, the estimates, for the
counting of innovations in the first stage and productivity in the second,
8
For example, workers in production units can devote a small part of their
time to assessing how the processes in which they work and how they can be
more efficient unfold. This is also related to the difficulty that some entrepre­
neurs can present in precisely identifying the activities that led to the obtaining
of some innovation (Villarreal et al., 2015).
9 complexity in the design, agreements or confidentiality contracts with
The lags of the variables are important. These allow solving the problem of
endogeneity and additionally maintain the timeline where the innovative effort
and the objectives on the productivity of firms occur. Also, the results are
evaluated from the transversal analysis before time, since the variables change
very slowly in time, the variation between individuals is substantially wider
than the variation in time (within) which estimatesn by pooled OLS with lags
generate efficient estimators and, solve the problem of strict exogenity.
8
Social Sciences & Humanities Open 6 (2022) 100330
are applied to the whole set of firms and not only to those that report
investment data, as CDM models usually do. They apply to the entire set
of firms and not only to those that report investment data, as CDM
models usually do.
In sum, two stages in this model will be used from the following
specification:
1. Equations for R&D amount. (Heckman Pooled model)
Pr(ACTI)it =α0 +α1 MdoIntit +α2 Tamit +α3 Empit +α4 Personalit +α5 antigit
′ ′ ′ ′ ′
+β Apropkit +γ Obstkit +ψ Fuenteskit +δ Coopkit +ω Intensidadkit +vit
Ln(ACTI)it
′
= α0 + α1 MdoIntit + α2 Empit + α3 Personalit + α4 antigit
′ ′ ′ ′
+β Apropkit +ξ Fondokit + ψ Fuenteskit +δ Coopkit + ω Intensidadkit
+Mills(ρσ e λ(Wit γ))+eit (35)
2. Fundamentals equation. (Pooled OLS)
′
Lnxit = γ 0 + γ1 Lnxit− 1 + β Ln(ACTIpredicted)kit− 1 + εit (36)
To explore an exploratory version of the CDM model, the following
will be developed based on three stages in this model will be used from
the following specification:
1. Equations for R&D amount. (Heckman Pooled model)
Pr(ACTI)it =α0 +α1 MdoIntit +α2 Tamit +α3 Empit +α4 Personalit +α5 antigit
′ ′ ′ ′ ′
+β Apropkit +γ Obstkit +ψ Fuenteskit +δ Coopkit +ω Intensidadkit +vit
Ln(ACTI)it = α0 + α1 MdoIntit + α2 Empit + α3 Personalit + α4 antigit
′ ′ ′ ′ ′
+β Apropkit +ξ Fondokit + ψ Fuenteskit +δ Coopkit + ω Intensidadkit
+Mills(ρσ e λ(Wit γ))+eit (37)
2. Knowledge production function. First Stage (Pooled OLS)
′
Innovprodit− 1 = β0 + β Ln(ACTIpredicted)kit− 1 + ρit (38)
′
Innovprocit− = β0 + β Ln(ACTIpredicted)kit− 1 + ρit (39)
1
3. Fundamentals equation. Second Stage (Pooled OLS)
Lnxit = γ 0 + γ1 Lnxit− 1 + γ 2 Innovprodpredit− 1 + γ 3 Innovprocpredit− 1
+ εit (40)
where MdoInt (Foreign capital) is equal to one if the firm has foreign
capital greater than 25%, Tam (Size) refers to the logarithm of em­
ployees; Emp (push demand) is equal to one if the firm expresses as very
important the improvement in the quality of goods or services and the
expansion in the range of goods or services offered (Griffith et al., 2006).
Aprop contains two appropriation scenarios, formal and strategic pro­
tection. The formal protection refers to whether the firm used invention
patents, utility models, copyrights, software registrations, registration of
industrial designs, registration of distinctive signs and trademarks, and
plant variety breeder certificates to protect its inventions or innovations.
The strategic protection means that the firm used to protect its in­
ventions or innovations mechanisms such as industrial secrecy, high
other firms, and agreements or confidentiality contracts with em­
ployees. Likewise, Fondo refers to variables of own financing, commer­
cial or public for the promotion of innovations. Finally, Fuentes is related
to the sources of ideas to innovate from customers, suppliers, competi­
tors, universities, or R&D centers. Personal refers to the percentage of
F. Barrios Aguirre
personnel employed with technical, technological, and professional
education (qualified), or with a master’s and doctoral education. antig is
a variable related to the logarithm of the personnel in years, Coop is a set
of variables in which they show if the company cooperated with other
agents for the realization of scientific, technological, and innovation
activities or R&D activities. Intensity is a variable that measures the
technological intensity of the sector: High, medium high, medium low,
and low. The calculation of this variable is proposed by the DANE.
The probability equation contains a crucial assumption about vari­
ables affecting the decision to invest in innovation, but not the intensity
of the innovation effort. These exclusion restrictions are firm size and
obstacles to innovation.
The probability equation includes four variables of obstacles to
innovation (Obst), related to limitation of resources, absence of qualified
personnel, absence of information on technologies, and absence of in­
formation on the market. These variables must be treated as an exclusion
restriction (i.e.variables affecting the decision to invest in R&D, but not
the intensity of the innovation effort). The vector includes a set of var­
iables used to capture the intensity of the obstacles firms may face when
innovating, thus, firms answer if the limitations of resources, the
absence of personnel, and the absence of information on technologies
and the market are of high importance as an obstacle to innovation. The
choice of the covariates used in this equation is mainly dictated by the
limited availability of information for noninnovative firms; But, these
are used as a barrier or fixed cost that makes it more likely to generate
the intention to invest in scientific, technological, and innovation ac­
tivities to try to overcome them, although this does not imply using a
large amount of resources to develop future innovations. Likewise, the
type of provenience of the resources for scientific, technological, and
innovation activities allows a firm to invest more: The more funding
sources it uses, the more money will be used in activities that foster
innovation.
The firm size,Tam, is used as a restriction of exclusion in the prob­
ability of investment in activities of innovation and technological
development. The impact of this variable is ambiguous in the
manufacturing industry: Some arguments support the hypothesis that
large firms are more innovative because having greater ability to access
external financing and greater availability of their own resources gen­
erates more probability to invest in innovation activities and techno­
logical development. Also, larger firms are more likely to invest in
innovation, innovation investment intensity as measured by the ratio of
total innovation expenditure per employee is already scaled and there­
fore less likely to be correlated to size (Criscuolo, 2009). Finally, it can
also happen that small firms, being more flexible in adapting to changes
in the environment, it can divert resources more easily to technological
development innovation activities.
6. Results
This section will discuss the results of the identification of the
different components of TFPR and its relationship with technological
innovation at the firm. First, the results for TFPQ and TFPR are shown.
Second, following the methodology proposed in De Loecker and War­
zynski (2012 2012) costs per compound input are computed. Finally, I
present the results of demand characteristics and the innovative tech­
nological effort in firms.
The interpretations will be made based on the two-stage least squares
model for panel data and a direct pooled OLS, to exploit components of
variability both inside the cross-sections at different moments. The first
stage of the model is a regression by ordinary least squares for panel data
among the nine predicted categories of amounts to invest in R&D
(equation (37)), the lag of the fundamental that is analyzed in the second
stage, and the variable that identifies the result of the innovations in
products and processes (equations (38) and (39)). The second stage is an
ordinary least squares regression for pooled data, which includes the
innovations of the first stage and the lag of the productivity fundamental
9
Social Sciences & Humanities Open 6 (2022) 100330
as independent variables to the contemporary fundamental (equation
(40)). Also, I explore a pooled ordinary least squares regression among
the nine predicted categories of amounts to invest in R&D, the lag of the
fundamental, and the fundamental (equations (35) and (36)).
The results of each of the fundamentals are shown below. Each of the
amounts invested in innovation activities was forecast, using a Heckman
pooled model for a grouped data set. These lagged forecasts were the
independent variables for the counts of lagged innovations in products
and processes. In turn, the predictions of the innovation counts or the
second stage of the model were taken into account for the first stage of
the model, in which productivity fundamentals are taken as dependent
variables.
6.1. Descriptive statistics
The study is carried out through the design of an unbalanced panel of
firms between 2008 and 2012, integrating information from the Survey
of development and technological innovation (EDIT) and the annual
manufacturing survey (EAM) from the National Department of Statistics
(DANE).
An important characteristic is an investment in Innovation activities
and R & D (see Table 1). In effect, low participation encourages the
implementation of more complex innovation strategies and even with
the participation of lines of promotion for innovation and technological
development (Table 3) (see Table 2).
Consequently, the intensity of spending on innovation and R & D
activities between 2007 and 2012 suggests that the Colombian
manufacturing industry is facing a situation where the allocation of
resources for innovation is not a priority and is unstable with a tendency
to decrease (Table 4).
Finally, when investment is disaggregated by nine predicted cate­
gories of amounts invested in activities related to the technological
innovation effort, between 2007 and 2012, it is observed that the re­
sources are mainly used for the acquisition of machinery and equipment,
acquisition of Internal and external R & D, as well as innovation mar­
keting (Tables 5 and 6). This indicates that the innovative effort is
largely dedicated to the improvement or novelty in the procedures, and
secondly to the innovations of products.
6.2. Results in total factor productivity
The descriptive statistics show a similar pattern in total Revenue
productivity, physical, and costs per compound input (Table 7). The
Total factor Revenue productivity and the costs per compound input
show an increasing trend between 2007 and 2012, which was expressed
as a favorable environment in the technological development of the
manufacturing industry, given that the greater gains in productivity and
higher Input costs occur with the generation of more innovative effort in
processes. However, in 2008 this growth slowed down. Physical pro­
ductivity increased 0.06% from 2007 to 2012 and there was a wide
divergence in this indicator, given that on average the widespread of
TFPQ persisted. Following the logic of the aggregate production func­
tion, factors of accumulation (capital and labor) and productivity
(considered as a measure of technological progress) explain economic
growth. In 2012, results of productivity in the Colombian manufacturing
Table 1
Observations per year.
Year Frequency Percentage Accumulated
2007 6262 9,09% 44,68%
2008 6215 9,03% 53,71%
2009 6778 9,84% 63,55%
2010 7918 11,50% 75,05%
2011 8696 12,63% 87,68%
2012 8483 12,32% 100,00%
Source: EAM, EDIT
F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

Table 2 Table 6
Characteristics of the data. Distribution of investment in ACTI 2007–2012.
Observations 24.228 Type of ACTI Total Distribution 2007–2012

Firms 11.201 R&D 13,1

Firms 2007–2008 7.286 Machinery & Equipment 61,6
Firms 2009–2010 8.226 TIC 6,9
Firms 2011–2012 8.716 Marketing of Innovations 8,4
Average number of consecutive observations 2.6 Technology Transfer 1,9
Technical Assistance and Consulting 5,3
Source: EDIT and EAM. Industrial Engineering & Design 2,1
Training 0,8

Source: EDIT and EAM.

Table 3
Participation of firms that invest in Innovation and R & D activities.
Investment Year Percentage
observed in the variation of the standard deviation over time. As of
2009, demand characteristics have increased and this is due to the in­
R&D 2007–2008 10.0
fluence of shocks, which are more appreciated in periods of crisis, to
2009–2010 9.5
2011–2012 6.4 expand the demand for goods and services (Table 7).
Innovation Activities 2007–2008 35.3 In terms of the correlation between fundamentals (Table 8), it is
2009–2010 33.1 observed that unit costs per compound input are positively correlated to
2011–2012 21.2 physical productivity, while demand characteristics are uncorrelated to
Source: EDIT and OCyT. TFPQ and are negatively correlated to costs for compound inputs.
A possible interpretation of the countercyclical correlations between
Demand, production, added value, and quantity produced is related to
Table 4 the quality of the product. It is possible that the quality, result of the
Intensity of R & D expenditure and Innovation activities per employee. product, and marketing research, optimizes the desired level of pro­
Intensity of Expenditure (Millions of pesos of Year Millions of duction (idle) that the firms kept in inventories (fewer products in in­
2006) pesos ventories and more demanded). Thus, the supply response to changes in
R&D 2007–2008 0.26 demand characteristics may be greater than the demand response. Also,
2009–2010 0.18 higher quality and market recognition optimizes idle production and
2011–2012 0.13 streamlines demand. (Nowadays, everyone would like to buy a good
Innovation Activities 2007–2008 3.09
2009–2010 2.03
with a high content of innovation and development). The correlation is
2011–2012 1.19 positive and significant between demand characteristics and prices.
The results obtained from the estimation of the investment in Ac­
Source: EDIT y OCyT.
tivities related to the innovative effort are achieved through a pooled
model using the procedure proposed by Heckman (1979). In turn, these
Table 5 results were obtained taking as a dependent variable the decision to
Distribution of investment in ACTI. invest in the different activities related to the innovative effort. The
auxiliary regressions (Table 20) show results obtained from a pooled
Year Type of ACTI Total
model using the procedure proposed by Heckman (1979). Regarding the
2007–2008 R&D 9.1 presence of qualified and highly qualified personnel, its impact on the
Machinery & Equipment 68.3
TIC 5.5
probability of investing varies according to the amount of investment.
Innovation Marketing 7.6 For example, the probability of incurring the amount of information
Technology Transfer 1.1 technology and telecommunications, and technical assistance and
Technical Assistance and Consulting 6.0 consulting are positively affected by the presence of highly qualified
Industrial Engineering & Design 1.5
personnel.
Training 0.8
2009–2010 R&D 11.9 Except for the value invested in acquiring external R & D activities,
Machinery & Equipment 65.6 strategic protection mechanisms, related to protection agreements and
TIC 5.6 industrial secrets of inventions, are positive determinants for all firms in
Marketing of Innovations 7.0 their decision to invest in any innovation and technological develop­
Technology Transfer 1.1
Technical Assistance and Consulting 5.4
ment activity. On the other hand, formal or tangible protection mech­
Engineering & Industrial Design 2.6 anisms (patents, registrations, and models) positively affect the
Training 0.9 probability of investing in R & D. Results indicate how the transaction
2011–2012 R&D 18.2 costs, interpreted in the efforts to obtain some kind of protection of in­
Machinery & Equipment 50.9
novations, generate an advantage by investing in activities related to
TIC 9.6
Marketing of Innovations 10.5 technological innovation, which leads them to invest less in these
Technology Transfer 3.4 activities.
Technical Assistance and consulting 4.5 Like formal protection mechanisms, cooperation mechanisms are
Industrial Engineering & Design 2.3 important in the probability of investment in R& D. In terms of sources
Training 0.7
of ideas for innovation, vertical sources (customers and suppliers) have a
Source: EDIT and OCyT. greater impact than horizontal sources (competitors) on the probability
of investment in R & D activities. Likewise, when the sources are uni­
industry are not unrelated to recent economic research for Latin versities and research centers, only values invested in internal and
America: despite the years of factor accumulation, the slow growth of external R & D activities and technical assistance and consulting are
productivity is at the root of Latin America’s weak performance (Fer­ positively affected. Results indicate that firms that have more developed
nandez-Arias, 2014 Crespi et al., 2014; Pagés, 2010). networks with customers and suppliers allow them to exploit these
The demand characteristics are more volatile than TFPQ, which is connections as sources of ideas for the innovative effort. One of the

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Table 7
Variable descriptive statistics of interest (Logarithms).
Variable Obs Mean Std. Dev. Min Max

Revenue Productitvity (LTFPR) 20.486 1,980536 0,7489105 − 1,471492 12,80838

Physical Productivity (LTFPQ) 20.486 2,357718 0,42617 1,791551 10,82863
Prices (LP) 20.486 − 0,377182 0,5657184 − 3,679452 5,01926
Demand (LD) 20.486 0,0262385 2,757563 − 13,49358 10,20942
Costs per composite input (LC) 20.422 2,750357 1,443823 − 2,189999 14,36866
Quantity of production (q) 20.486 13,19243 1,745392 6,572896 22,21499
Add Value (vaq) 20.486 9,254222 1,826686 0,9417039 18,16295
Production (y) 20.486 8,87704 1,732941 2,4688 17,84085

Table 7: Source: Own calculations based on EAM.

Table 8
Correlations between productivity fundamentals.
Correlation Table 2008–2012 (LTFPR) (LTFPQ) (LP) (LD) (LC) (q) (vaq) (y)

Revenue Productitvity (LTFPR) 1

Physical Productivity (LTFPQ) 0.6618* 1
Prices (LP) 0.8253* 0.1228* 1
Demand (LD) 0.2161* 0.0083 0.2799* 1
Costs per composite input (LC) 0.5566* 0.3782* 0.4519* 0.0929* 1
Quantity of production (q) − 0.0486* 0.0176* − 0.0776* − 0.9789* − 0,0001 1
Add Value (vaq) − 0.2202* 0.0330* − 0.3163* − 0.9694* − 0.1132* 0.9393* 1
Production (y) 0.0373* 0.0749* − 0.007 − 0.9304* 0.0283* 0.9648* 0.9508* 1

Table 8: Source: Own calculations based on EAM.

characteristics of Colombian manufacturing firms is their low degree of product innovation index show some interesting results. For example,
development in associative initiatives, which are based more on the the innovative effort related to the technology transfer, engineering, and
establishment of common objectives in terms of economic results, not industrial design positively affect process innovations, while amounts
those related to the innovative effort. invested in the acquisition of machinery and equipment, technology
The importance that firms give to the improvement in the quality of transference, technical assistance and consulting, and engineering and
goods or services and the expansion in the range of goods or services design industrial impact positively the product innovation index (Ta­
offered is a factor that drives the likelihood of incurring the innovative bles 21 and 22).
effort. In this sense, the more market demand a firm has for its in­ The results of regressions by two stages least squares grouped allow
novations, the more incentivized it would be to invest in innovation to inferring some relationships (Tables 9–12). In all the regressions, the
satisfy demand. fundamentals persist higher than 84%. In this sense, the structure of lags
Except for investment in information technology and telecommuni­ and the effect of R & D are related to the dynamic adjustment of pro­
cations, technology transfer, and technical assistance and consulting, ductivity fundamentals to the shocks generated by creative destruction.
foreign capital negatively affects the probability of investment in R & D. When including the total amount in R & D activities, predicted in nine
These results can be interpreted either as an opportunity cost invested
resources that the parent firm intervenes or because of the innovative
Table 9
and imitative profile of firms are subsidized by foreign capital in
2sls regression: Effects of innovative effort on productivity.
emerging countries. Also, the absence of qualified personnel seems to be
VARIABLES Average Physiscal Physical total Average
the most decisive barrier to innovation in the decision of firms to
total factor factor Demand (log)
innovate in R& D activities. It is followed by the limitations of resources productivity (log) productivity (log)
and the absence of information on the market seems to be very impor­
Count of innovation − 0.00394 − 0.00435 − 0.0164
tant also in the decision to innovate.
of new products (0.00294) (0.00374) (0.0158)
Regarding sector variables, firms located in industries with medium- (lag)
high and medium-low technological content have a greater inclination Count of innovation 0.00830* 0.00959* 0.0404
to invest in activities to innovate. Of course, it is expected that a sector of improved (0.00438) (0.00559) (0.0251)
products (lag)
on a higher the technological scale is more prone to innovate given the
Count of process 0.00396 0.00639 − 0.0791***
large market that exists for their goods and the high price they usually innovation (lag) (0.00627) (0.00754) (0.0337)
have, that is, where there are greater technological opportunities. Average Physiscal 0.889***
Finally, in this first stage, financing influences some R& D in­ total factor (0.00965)
vestments. For example, public financing positively affects investment productivity (log
and lag)
in the acquisition of machinery and equipment (processes); Commercial
Physical total factor 0.843***
financing positively affects the probability of investing in the acquisition productivity (log (0.00917)
of machinery and equipment (processes), and marketing (products). and lag)
Own financing only affects the probability of investing in marketing Average Demand 0.993***
(log and lags) (0.0178)
(products).
Constant 0.265*** 0.372*** 0.108***
The results indicate that the innovative effort affects differentially (0.0223) (0.0213) (0.0163)
the obtaining of innovations. When the amounts invested in activities of Observations 10,044 11,003 10,044
innovations and technological development are disaggregated, corre­ R-squared 0.233 0.230 0.831
spondence between these allocations and the expected result of inno­ Standard errors in parentheses.
vation is evidenced. ***p < 0.01, **p < 0.05, *p < 0.1.
Stages of models performed with process innovation counts and the Table 9: Source: Own calculations based on EAM.

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F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

Table 10 Table 12
2sls regression: Effects of innovative effort on productivity. 2sls regression: Effects of innovative effort on productivity.
VARIABLES Average Average Costs per Costs per VARIABLES Demand Average Costs per Costs per
Demand (log) compound input compound input (log) compound input compound input
(log) (log) (log) (log)

Count of innovation of − 0.0204 − 0.0153 − 0.0124 Count of process − 0.106*** − 0.0188 0.000633
new products (lag) (0.0178) (0.0110) (0.0115) innovation (lag) (0.0338) (0.0157) (0.0177)
Count of innovation of 0.0386 0.0311* 0.0294* Demand (log and lags) 0.968***
improved products (0.0281) (0.0166) (0.0173) (0.00572)
(lag) Average Costs per 0.989***
Count of process − 0.0723*** − 0.00626 − 0.00260 compound input (log (0.00458)
innovation (lag) (0.0355) (0.0235) (0.0230) and lag)
Demand (log and lags) 0.975*** Costs per compound 0.955***
(0.0074) input (log and lag) (0.00479)
Average Costs per 0.985*** Product Innovations 0.344 0.267* 0.190
compound input (0.00645) Index (lag) (0.271) (0.138) (0.157)
(log and lag) Constant 0.144** 0.118*** 0.228***
Costs per compound 0.953*** (0.00762) (0.0128) (0.0137)
input (log and lag) (0.00588) Observations 11,003 10,013 10,970
Constant 0.141*** 0.131*** 0.235*** R-squared 0.864 0.870 0.834
(0.0166) (0.0189) (0.0175)
Observations 11,003 10,013 10,970 Standard errors in parentheses.
R-squared 0,831 0.654 0.676 ***p < 0.01, **p < 0.05, *p < 0.1.
Table 12: Source: Own calculations based on EAM.
Standard errors in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.
Table 10: Source: Own calculations based on EAM. Table 13
2LS regression: Impacts of count innovations on productivity.
Fundamental Coeficient Std. t P>— [95% conf.
Table 11
Err t— Interval]
2sls regression: Effects of innovative effort on productivity.
Absolute Values/Average LTFPQ
VARIABLES Average Physiscal Physical total Average
Total effect (%) 0,91 0,01 72,27 0,00 0,88 0,93
total factor factor Demand
Only Significative 0,90 0,01 82,87 0,00 0,88 0,92
productivity (log) productivity (log) (log)
Parameters (%)
Count of process 0.00685* 0.0126** − 0.115*** Total effect Including 1,16 0,01 87,10 0,00 1,14 1,19
innovation (lag) (0.00413) (0.00582) (0.0326) Intercept (%)
Average Physiscal 0.887*** Total effect without 0,02 0,01 1,60 0,11 0,00 0,04
total factor (0.00601) fundamental lag
productivity (log (%)
and lag) Only Significatives 0,01 0,01 1,57 0,12 − 0,01 0,02
Physical total factor 0.840*** without
productivity (log (0.00671) fundamental lag
and lag) (%)
Average Demand (log 0.984*** Absolute Values/Average LD
and lags) (0.00601) Total effect (%) 1,13 0,05 23,51 0,00 1,04 1,22
Product Innovations 0.0186 0.000358 0.556** Only Significative 1,07 0,04 34,86 0,00 1,01 1,13
Index (lag) (0.0368) (0.0522) (0.257) Parameters (%)
Constant 0.270*** 0.379*** 0.111*** Total effect Including 1,24 0,05 23,06 0,00 1,13 1,34
(0.0139) (0.0156) (0.0142) Intercept (%)
Observations 10,044 11,003 10,044 Total effect without 0,14 0,05 2,90 0,00 0,04 0,23
R-squared 0.704 0.587 0.873 fundamental lag
(%)
Standard errors in parentheses. Only Significatives 0,08 0,03 2,35 0,02 0,01 0,15
***p < 0.01, **p < 0.05, *p < 0.1. without
Table 11: Source: Own calculations based on EAM. fundamental lag
(%)
Absolute Values/Average LC
categories or using the information coming from the EDIT, it is observed
Total effect (%) 1,04 0,04 29,61 0,00 0,96 1,11
that the innovative effort differentially affects productivity Only Significative 0,95 0,02 53,55 0,00 0,92 1,99
fundamentals. Parameters (%)
A Two-stage pooled OLS model shows that process innovations in­ Total effect Including 1,17 0,04 30,58 0,00 1,09 1,24
Intercept (%)
crease average physical productivity between 0.6% and physical pro­
Total effect without 0,01 0,02 0,48 0,63 − 0,03 0,05
ductivity by 1.26%, while reducing the average demand characteristics fundamental lag
by 11.5% and the demand characteristics by 10.6%. Innovations of (%)
improved products increase physical productivity by 0.9% and costs per Only Significatives 0,03 0,02 − 1,88 0,06 − 0,06 0,00
compound input by 2.9%. These results are congruent when the product without
fundamental lag
index is included as a dependent variable; Process innovations positively
(%)
affect physical productivity and negatively impact demand, while
product innovations positively affect demand characteristics and com­ Table 13: Source: Own calculations based on EAM.
pound input costs. Likewise, the product innovation index for each in­
crease of 0.1 points increases the average demand characteristics by whereas the latter a substantial part of the variation in demand is due to
0.55% and average cost by 0.26%. These results are consistent with the innovative firms. In terms of process innovation, it is suggested that
findings of Foster et al. (2008) in which the demand characteristics and process innovation is a priori expected to have a more prominent posi­
technical efficiency affect business performance and demand variation, tive effect on productivity as they are directly related to reductions in

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Table 14 Table 15
2LS regression: Impacts of count innovations on productivity. Pooled OLS regression: Direct Effects of innovative effort on productivity.
Fundamental Coeficient Std. t P>— [95% conf. VARIABLES Average Physiscal Physical total Average
Err t— Interval] total factor factor Demand
productivity (log) productivity (log)
Absolute Values/LTFPQ
(log)
Total effect (%) 0,86 0,01 58,89 0,00 0,83 0,89
Only Significative 0,85 0,01 76,62 0,00 0,83 0,88 Average Physiscal total 0.886***
Parameters (%) factor productivity (0.0462)
Total effect Including 1,23 0,01 84,22 0,00 1,20 1,26 (log and lag)
Intercept (%) Internal R & D activities 0.0314** 0.0367** 0.216***
Total effect without 0,02 0,01 1,60 0,11 0,00 0,05 (log and lags) (0.0137) (0.0164) (0.0660)
fundamental lag Acquisition of external 0.00256 0.00233 0.0241
(%) R & D (logarithms and (0.00655) (0.00766) (0.0419)
Only Significatives 0,01 0,01 1,71 0,09 0,00 0,02 lags)
without Acquisition of − 0.0107 − 0.0158 − 0.0590*
fundamental lag Machinery and (0.00696) (0.0102) (0.0347)
(%) equipment (log and
Absolute Values/LD lags)
Total effect (%) 1,11 0,05 20,96 0,00 1,00 1,21 Marketing of − 0.00704 − 0.00986 0.104**
Only Significative 1,05 0,03 31,76 0,00 0,98 1,11 Innovations (log and (0.00726) (0.0103) (0.0502)
Parameters (%) lags)
Total effect Including 1,25 0,06 21,45 0,00 1,13 1,36 Information and − 0.00450 − 0.00593 − 0.160*
Intercept (%) communications (0.0145) (0.0218) (0.0827)
Total effect without 0,13 0,05 2,56 0,01 0,03 0,23 technology (log and
fundamental lag lags)
(%) Technology transfer 0.00763** 0.0108** 0.00273
Only Significatives 0,07 0,04 2,04 0,04 0,00 0,14 (log and lags) (0.00324) (0.00463) (0.0126)
without Technical assistance 0.0172 0.0252* 0.115*
fundamental lag and consulting (log (0.0116) (0.0149) (0.0625)
(%) and lags)
Absolute Values/LC Engineering and − 0.00699 − 0.00628 − 0.104**
Total effect (%) 1,00 0,04 28,21 0,00 0,93 1,07 industrial design (log (0.00804) (0.0116) (0.0404)
Only Significative 0,98 0,02 53,01 0,00 0,95 1,02 and lags)
Parameters (%) Training (log and lags) − 0.0181** − 0.0231** − 0.166***
Total effect Including 1,23 0,04 32,50 0,00 1,16 1,31 (0.00820) (0.0111) (0.0498)
Intercept (%) Physical total factor 0.841***
Total effect without 0,04 0,03 1,31 0,19 − 0,02 0,11 productivity (log and (0.0694)
fundamental lag lag)
(%) Average Demand (log 1.005***
Only Significatives 0,03 0,02 1,70 0,09 0,00 0,06 and lags) (0.00340)
without Constant 0.157 0.240 − 0.108
fundamental lag (0.110) (0.164) (0.230)
(%)
Observations 10,044 11,003 10,044
Table 14: Source: Own calculations based on EAM. R-squared 0.734 0.647 0.934

Robust standard errors in parentheses.

costs (Mohnen & Hall, 2013). This result is consequently found in some
***p < 0.01, **p < 0.05, *p < 0.1.
studies (Mairesse, Mohnen, & Kremp, 2005; Griffith et al., 2006; Table 15: Source: Own calculations based on EAM.
Chudnovsky et al., 2006; Masso & Vahter, 2008). Also, on theoretical
grounds, negative effects on demand may arise because innovations
product and process innovations is between 0.85% and 0.90% in TFPQ,
might have disruptive effects on the firm in the short run owing to the
1.05%, and 1.07% in Demand, and 0.98% and 0.95% in Costs.
inefficient production at the beginning stages of mass production (Roper
A possibly comparable result found in Criscuolo (2009) estimated the
and DuLove, 2008).
CDM model to find the relationship between product and process in­
Finally, it is supported that the innovative effort in products has a
novations and labor productivity as measured by logs of sales per
substantial impact on the productivity coming from the demand char­
employee. Results evaluated across 18 countries show that product
acteristics, unlike the effort in process innovations that generates effects
innovation is strongly associated with labor productivity. In all countries
on the physical productivity (Foster et al., 2008). In terms of product
except Switzerland sales from product innovation per employee show a
innovation, Mohnen and Hall (2013) suggest that product innovation
positive and significant coefficient. The magnitude of the coefficients of
benefits firms’ productivity by creating a new source of demand
sales from innovation in the productivity equation ranges from 0.3% to
potentially giving rise to scale effects or requiring less inputs than the
0.7%. On average, across this universe of heterogenous innovating firms
old products. On the other hand, the productivity may decline by the
in different institutional contexts, a 1% increase in firms’ innovation
driving out old products from the market namely the cannibalizing ef­
sales per employee is associated with a productivity increase of 0.5%.
fect of the new products. Further, when the product is launched to the
Also, Criscuolo (2009) shows that the coefficient for process inno­
market productivity might decrease initially, and afterward it may
vation, except in Austria, is either not significant or negative. This might
improve due to learning effects.
come as a surprise since process innovation is generally associated with
Then, an important source of productivity growth is related to firm
greater productivity because of lower costs, greater efficiency of pro­
improvements in terms of better organization and production methods,
duction, etc (Criscuolo, 2009). There is two possible explanation: first,
new products, learning, and capability development (Grazzi & Pie­
the introduction of process innovation entails changes and therefore
trobelli, 2016).
adjustment costs and additional learning which may temporarily lower
The impact due to the increase in product and process innovations is
productivity. Second, firms are likely to introduce process innovations in
between 0.008% and 0.009% in TFPQ, 0.08%, and 0.07% in Demand,
times of difficulty or lower production cycles. This is because the ex­
and 0.029% and 0.031% in Costs. When the lag of the fundamental
pected net gains are higher (lower opportunity cost introducing the
(statistically significant) is included, the impact due to the increase in

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Table 16 characteristics in a between regression.

Pooled OLS regression: Direct Effects of innovative effort on productivity. A possible explanation could be that the innovative effort makes it
VARIABLES Demand Average Costs per Costs per possible to produce new goods and services and improve the process,
(log) compound input compound which brings about more effective use of existing resources, permits the
(log) input (log) use of better inputs, and reduces the demand characteristics, when the
Internal R & D activities 0.226*** 0.113** 0.0905* best products quality, standardize procedures, goods, and services and
(log and lags) (0.0727) (0.0470) (0.0510) reduce the choice of them by subjective appreciations or because it is
Acquisition of external R & 0.0355 0.0144 − 0.00431 easier to enter the market with an improvement than with a new product
D (logarithms and lags) (0.0456) (0.0300) (0.0310)
Acquisition of Machinery − 0.05660 − 0.0470* − 0.0721**
design.
and equipment (log and (0.0403) (0.0257) (0.0288) Taking the results of the regressions, we find strong but imperfect
lags) correlations between the amounts specifically destined for the in­
Marketing of Innovations 0.171** − 0.00350 − 0.0587 novations of products and processes, and between the effects of the in­
(log and lags) (0.0548) (0.0344) (0.0378)
novations in the fundamentals. These correlations give some support to
Information and − 0.231* 0.0288 0.108*
communications (0.0909) (0.0571) (0.0648) this work in which the innovative effort, through the knowledge func­
technology (log and lags) tion, has differential effects on the fundamentals of productivity. Like­
Technology transfer (log − 0.00897 − 0.000843 0.00262 wise, these correlations point to a series of ways in which our measures
and lags) (0.0148) (0.00872) (0.00988) seem reasonable: Physical productivity, costs per compound input, and
Technical assistance and 0.102 0.00587 0.00173
consulting (log and lags) (0.0719) (0.0437) (0.0475)
demand characteristics are correlated with the innovative effort,
Engineering and industrial − 0.127** − 0.0399 0.0125 differentially. In addition, it shows that technical efficiency and demand
design (log and lags) (0.0517) (0.0307) (0.0346) characteristics are the elements where the innovative effort affects in
Training (log and lags) − 0.163*** − 0.0506 − 0.0444 greater proportion. This provides insight as to why our decompositions
(0.0498) (0.0323) (0.0367)
are going to point to attractiveness and scope as the main drivers of
Demand (log and lags) 0.984***
(0.00455) heterogeneity in the firm.
Average Costs per 0.985*** When evaluating the direct effects of innovative effort on produc­
compound input (log and (0.00458) tivity, the results are interesting (Tables 15 and 16). The coefficient of
lag) the fundamental and its lag is high and significant, which indicates a
Costs per compound input 0.952***
high degree of persistence over time. Likewise, it is verified that the
(log and lag) (0.00639)
Constant 0.0296 − 0.00996 − 0.0119 resources destined for the strengthening of the internal innovation ac­
(0.298) (0.271) (0.306) tivities increase TFPQ, they expand demand, but at the same time, it
Observations 11,003 10,013 10,970 generates an increase in the cost per compound input. This result is
R-squared 0.909 0.878 0.836
consistent with empirical literature devoted to investigating the rela­
Robust standard errors in parentheses. tionship between R&D and productivity. On the whole, this micro­
***p < 0.01, **p < 0.05, *p < 0.1. econometric literature has provided robust evidence of a positive and
Table 16: Source: Own calculations based on EAM. significant impact of R&D on productivity at the firm level, with an
elasticity ranging from 0.05 to 0.25 (Castellani et al., 2016).
innovation and greater gains from the changes) and possible opposition The acquisition of machinery and equipment to strengthen innova­
to change is less strong. Finally, the author mentions “Since the analysis tion only affects demand characteristics and costs for compound inputs:
is on a cross-section, not panel data, and the productivity variable is A possible explanation could be that the acquisition of new machinery
contemporaneous with the innovation variable, the data do not allow requires a moment of adaptation of inputs and production standards.
testing for this hypothesis. However, existing evidence suggests that This possibly diminishes the uncertainty for quality but requires that
both of these mechanisms are at work”. production inputs adapt for the optimal development of the production.
The innovative effort in the process affects demand and TFPQ and The resources related to communication and information technology
does not have a significant effect on costs (Tables 11 and 12); Also, the reduce the demand characteristics, but it requires a high cost of adap­
innovative effort in products affects costs and demand and does not have tation in inputs. The transfer of technology fulfills a purpose related to
a significant effect on TFPQ, while both affect demand characteristics of the best combination of inputs and processes, so the TFPQ increases. The
the firm (Cassiman & Vanormelingen, 2013). A substantial part of the resources allocated to engineering and industrial design reduce demand
variation in demand is found among firms that carry out product inno­ and training decreases the TFPQ and demand characteristics.
vation activities (Foster et al., 2008). It can be suggested that innovation This can be explained for several reasons. When a strategy is pro­
efforts can translate into productivity gains for firms such that in­ moted to open up the innovation process to internal knowledge flows,
novations can both increase firms’ efficiency and improve the products the quality and speed of innovation can be improved when the set of
they offer, hence escalating demand and reducing costs of production ideas to choose among those responsible for innovation increases. In the
(Hall, 2011). short term, it is costly, in time and money, to assimilate the processes of
Therefore, the role of R&D investments related to product innova­ learning and absorption of knowledge by the inputs used in the pro­
tion, as well as the subsequent success of innovation, could be an duction of new or improved goods and the assimilation of new processes.
important factor in explaining the heterogeneity observed among firms Indeed, new resources imply an increase in the costs of inputs. Likewise,
(Syverson, 2011). Specifically, these results indicate that when new the firm that carries out R & D persistently undergoes a learning process
processes are improved or implemented, the combination of inputs is in which it develops routines to carry out R & D and acquires experience
more efficient in firms. However, the adaptation of these improvements in how to commercialize R & D results, at the same time that it accu­
or novelties in the processes implies the search for inputs in line with the mulates a reserve of knowledge. In this sense, the resources allocated to
quality and improvement of the process; Usually, these inputs have a internal R & D increase efficiency due to the improvement in the ab­
higher cost than a traditional one. In terms of demand characteristics, sorption capacity of a firm.
the results of these processes imply the development of new products, Martin and Nguyen-Thi (2015) argue that internal R&D activities
which usually need a greater incentive to grow in international markets allow firms to screen innovative projects and may stimulate the devel­
or an eventual expansion of demand. These results are not immediate, opment of new products or processes and, in many cases, the creation of
they require marketing planning and in the first instance, they have low new markets (Griffith et al., 2004). Firms may need internal R&D ac­
demand. This is reasonable with the results found for the demand tivities to promote their “absorptive capacity”, which is identified in the

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F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

Table 17
Pooled OLS regression: Direct Effects of innovative effort on productivity.
Fundamental Coeficient Std.Err t P>— t— [95% conf.Interval]

Average LTFPQ
All without fundamental lag (%) 0,01 0,005 2,00 0,045 0,0002 0,022
Only Significatives without fundamental lag (%) 0,02 0,01 1,35 0,176 − 0,009 0,05
Only Significatives and positive without fundamental lag (%) 0,04 0,01 2,90 0,004 0,01 0,06
Only Significatives and negative without fundamental lag (%) − 0,02 0,008 − 2,21 0,027 − 0,034 − 0,002
Average LD
All without fundamental lag (%) − 0,03 0,032 − 0,88 0,378 − 0,091 0,03
Only Significatives without fundamental lag (%) − 0,05 0,046 − 1,19 0,235 − 0,15 0,03
Only Significatives and positive without fundamental lag (%) 0,43 0,10 4,04 0,000 0,22 0,64
Only Significatives and negative without fundamental lag (%) − 0,49 0,13 − 3,59 0,000 − 0,76 − 0,22
Average LC
All without fundamental lag (%) 0,02 0,02 0,89 0,375 − 0,02 0,06
Only Significatives without fundamental lag (%) 0,07 0,04 1,40 0,16 − 0,03 0,16
Only Significatives and positive without fundamental lag (%) 0,11 0,04 2,40 0,016 0,02 0,20
Only Significatives and negative without fundamental lag (%) − 0,05 0,02 − 1,83 0,068 − 0,09 0,003

Table 17: Source: Own calculations based on EAM.

Table 18
Pooled OLS regression: Direct Effects of innovative effort on productivity.
Fundamental Coeficient Std.Err t P>— t— [95% conf.Interval]

LTFPQ
All without fundamental lag (%) 0,01 0,007 1,88 0,060 − 0,0006 0,028
Only Significatives without fundamental lag (%) 0,05 0,02 2,04 0,041 0002 0,09
Only Significatives and positive without fundamental lag (%) 0,07 0,02 3,30 0,001 0,03 0,11
Only Significatives and negative without fundamental lag (%) − 0,02 0,01 − 2,08 0,038 − 0,04 − 0,001
LD
All without fundamental lag (%) − 0,06 0,03 − 1,65 0,099 − 0,13 0,01
Only Significatives without fundamental lag (%) − 0,12 0,12 − 1,05 0,295 − 0,35 0,11
Only Significatives and positive without fundamental lag (%) 0,40 0,10 3,80 0,000 0,19 0,60
Only Significatives and negative without fundamental lag (%) − 0,52 0,16 − 3,23 0,001 − 0,83 − 0,20
LC
All without fundamental lag (%) 0,03 0,02 1,37 0,17 − 0,015 0,08
Only Significatives without fundamental lag (%) 0,13 0,06 2,03 0,042 0004 0,25
Only Significatives and positive without fundamental lag (%) 0,20 0,07 2,65 0,008 0,05 0,34
Only Significatives and negative without fundamental lag (%) − 0,07 0,03 − 2,50 0,012 − 0,13 − 0,015

Table 18: Source: Own calculations based on EAM.

literature as a source of productivity growth (Romer, 1990; Grossman &
Helpman, 1991; Griffith et al., 2004). When investing in internal R&D,
firms become involved in a process of learning and adaptation which
should allow them to acquire the “ability to recognize the value of new,
external information, assimilate it, and apply it to commercial ends”
(Cohen & Levinthal, 1990). If a firm masters its absorptive capacity, it
can take advantage not only of its innovative efforts but also of the fruits
of others’ R&D investments, which can in turn result in substantial
improvements to firm innovativeness. On the other hand, external R&D
activities such as knowledge acquisition, through outsourcing,
sub-contracting, or partnerships, are becoming a credible complement
to internal R&D activities (Cassiman & Veugelers, 2006). Due to the tacit
and non-transferable nature of knowledge and the evolutionary and
continual character of the learning process, innovative firms should seek
to concentrate on their specific capabilities while simultaneously
participating in cooperative arrangements to develop new skills and
extend the firm’s know-how to new applications.
When resources are allocated for the acquisition of machinery and
equipment, it takes more time to see the positive effect because these
resources are directed towards the development of new processes, which
implies a negative effect in the short term due to adjustment costs.
In terms of the resources invested in marketing innovation, the in­
crease in demand characteristics possibly is associated with the fact that
a successful commercial relationship between a brand and its resellers
can allow both parties to compete in a competitive market. Thus,
innovation in marketing initiatives can be a function of the contributions
made by the brand to its competitiveness. The resources invested in
technology transfer increase productivity through learning and
convergence with firms that possess more advanced technologies. This is
the incentive for firms in recovery economies to invest in the acquisition
of advanced technologies created in other places or by more techno­
logically advanced firms. Also, In the modern economy, technology
transfer is often indicated as a key factor in enabling the development of
new processes and new work practices (Grazzi & Pietrobelli, 2016).
Finally, when investing in training, engineering, and industrial
design, physical productivity and demand are reduced. The develop­
ment of new designs and personal training is the cost of opportunity in
the development of productivity and the quality of demand. These re­
sults complement each other when firms invest in R & D to counteract
the decrease in profits or when firms only outsource R & D from time to
time, in which case the firm does not have the routines to do it
efficiently.
7. Implications
Once the results of the first and second stages are estimated, optimal
policy designs can be generated for the entrepreneur who uses the
innovative effort to increase their physical productivity, expand demand
or boost their costs per compound input. Starting from a change in 1% in
the amounts invested in innovation and development activity, we will
observe how the disaggregated productivity will increase (Tables 17 and
18). To obtain the impact of a 1% increase in amounts invested in
innovation and technological development activities in each funda­
mental productivity, I used the sum of positive and negative total sig­
nificant parameters in regressions related to the direct effects of
innovative effort on the disaggregated productivity (Tables 15 and 16). I

15
F. Barrios Aguirre
also calculate the sum of all significant coefficients (without changing
the sign of the negatives) and the sum of all coefficients regardless of
whether they are significant (without changing the sign of the nega­
tives). Therefore, it could examine an inferior portfolio evaluated with
all the parameters associated with the investment amounts compared to
the investment portfolio evaluated only on the positive parameters. This
would generate a contrast with the optimal or desired portfolio.
Also, I calculated the significance and confidence interval based on a
Wald statistic and I am testing the null hypothesis that the sum of co­
efficients (not variables) is zero. (Tables 17 and 18). I computed a point
estimates, standard errors, t statistics, p-values, and confidence intervals
for linear combinations of statistically significant coefficients after the
direct effects of innovative effort on productivity estimations.10.
One could execute a policy based on fundamental productivity, given
the direction in which the investment amounts should affect the TFPQ,
demand characteristics, and costs. Thus, if the objective is to increase
physical productivity, a strategy would be to increase by 1% amounts
invested in internal R& D, technology transfer, and technical assistance,
and consulting. Thus, the average TFPQ would increase by 0.04% and
TFPQ by 0.07%. The increase of amounts in the marketing of in­
novations, internal R & D, and the technical assistance and consulting
would increase the average demand characteristics by 0.43% and de­
mand characteristics by 0.40%; finally, increasing the acquisition of
machinery and equipment by 1% for the promotion of innovation would
generate a reduction in input costs between 0.07% and 0.05%. Effec­
tively this desired portfolio is much better than increasing by 1% each of
the resources used for the promotion of innovation and technological
development activities (independent of its statistical significance), and
this would constitute an important business policy within a firm when it
is deciding what to invest to promote technological development and
productivity (Tables 17 and 18). Resorting to this strategy the significant
coefficients that contribute most to the increase of the fundamental are
those associated with demand characteristics, followed by the costs per
unit inputs.
Finally, increasing the amount invested in training by 1% decreases
the TFPQ by 0.02%. In the case of demand characteristics, decrease
between 0.49% and 0.52% if the firms increase by 1% each amount of
acquisition of machinery and equipment, information and communica­
tion technologies, engineering and industrial design and training. Costs
would increase between 0.11% and 0.20% by 1% increase in informa­
tion and communication technologies and internal R& D activities.
Again, the characteristics of demand have a greater effect than the other
fundamentals of productivity.
8. Discussions
These findings allow us to better understand the impact of the
innovative effort of processes and products in firms. Therefore, they are
very valuable information for managers and public managers, as they
will help them make investment decisions related to the advance of
innovation. The methodology and results show an alternative vision of
relating technological innovations with a measure of productivity
separated into elements of demand and technical efficiency, to take
advantage of the differentiating results for each of these components.
The demand characteristics are the elements where the innovative
technological effort affects in greater proportion, so the recommenda­
tions should be aimed at favoring these development paths through
more innovative performance. If the innovative technological effort
matters in the development of the firms’ productivity, one way to meet
this recommendation is through the innovative stimulus of firms. The
10
I use the lincom command in Stata to calculate point estimates. This com­
mand calculates the confidence interval for a scalar linear combination of the
parameters Rβ − r. This is computed by using a Wald confidence interval for γ,
with γ = Rβ − r and the squared standard error s2γ = RV(β)R
′
16
Social Sciences & Humanities Open 6 (2022) 100330
dilemma in which entrepreneurs would find themselves with innovative
purposes would be in the type of financing they should take to increase
their innovations: Public or private financing. This constitutes a
recommendation for future work in this area.
Also, if policies are implemented that can reduce the distance to the
technological frontier, through the promotion of process innovations or
product improvements, this, in turn, may boost business competitive­
ness. Thus, these are directed from a macro policy to directly grant the
responsibility of policies to improve innovation and reduce technolog­
ical distance, in countries that need to recover in the world market, and
improve their levels of business technical efficiency, costs, and returns to
scale.
This document evaluates from the point of view of resources, the
factors that prevent faster productivity growth based on the study of the
dynamics of manufacturing firms. A common argument is that the
productivity increases can be the result of reallocating resources from
sectors and firms that are less productive to more productive due to
competition and (Schumpeterian) processes of creation and destruction.
However, another important source of productivity growth is related to
the firm’s improvements in terms of better organization and production
methods, new products, learning, and capacity development. This
document provides original evidence on the determinants of produc­
tivity of Colombian manufacturing firms based on quantitative analysis,
using data from the annual manufacturing survey and the technological
development survey (EAM and EDIT).
The explanation is focused on innovative dynamics and productivity
at the firm level. Innovation is the main focus of this document and
confirms the overall result that matters for the productivity of the firm.
The differences in the magnitude of the effects of each amount indicate
that the dynamics of innovation are sensitive to the innovation systems
in which the firms are located. The mechanisms that lead to innovation,
as well as their impact on performance, vary greatly according to the
capabilities of firms, the decision to invest in knowledge, as well as the
relationship between R & D, innovation results, and performance of
productivity, are significantly correlated with the characteristics and
decisions of the firm.
9. Conclusions
In this document, the impact of the innovative effort on the different
components of total factor productivity was estimated: TFPQ, Cost per
compound input, and demand characteristics. To obtain a measure of
each of these components, we follow the methodology of Foster et al.
(2008) and use different methodologies to find each of the productivity
components.
The demand characteristics are the elements where the innovative
technological effort affects in greater proportion, so the recommenda­
tions should be aimed at favoring these development paths through
more innovative performance. If the innovative technological effort
matters in the development of the firms’ productivity, one way to meet
this recommendation is through the innovative stimulus of firms.
In net terms, process innovations increase average physical produc­
tivity by 0.6% and physical productivity by 1.26%, while reducing the
average demand characteristics by 11.5% and the demand characteris­
tics by 10.6%. Innovations of improved products increase physical
productivity by 0.9% and costs per compound input by 2.9%. These
results are congruent when the product index is included as a dependent
variable; Process innovations positively affect physical productivity and
negatively impact demand, while product innovations positively affect
demand characteristics and compound input costs. Likewise, the prod­
uct innovation index for each increase of 0.1 points increases the
average demand characteristics by 0.55% and average cost by 0.26%.
I calculated the sum of all significant coefficients (without changing
the sign of the negatives) and the sum of all coefficients regardless of
whether they are significant (without changing the sign of the nega­
tives). Thus, It examined a portfolio inferior to that of investing in only
F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

the positive parameters, which served as a contrast with the optimal or
desired portfolio. Increasing the fundamental productivity percentage
by increasing by 1% the significant amounts, compared to not increasing
any of them implies that to increase physical productivity would be to
increase by 1% the amounts invested in internal R& D, technology
transfer, and technical assistance and consulting. Thus, TFPQ would
increase between 0.04% and 0.07%. The increase of amounts in the
marketing of innovations, internal R & D, and the technical assistance
and consulting would increase the characteristics of demand between
0.40% and 0.43%; finally, increasing the acquisition of machinery and
equipment by 1% for the promotion of innovation would generate a
reduction in input costs between 0.07% and 0.05%.
Increasing the amount invested in training by 1% decreases the TFPQ
by 0.02%. In the case of demand, there is a decrease between 0.49% and
0.52% if the firms increase by 1% each amount of acquisition of ma­
chinery and equipment, information and communication technologies,
engineering and industrial design, and training. Costs would increase
between 0.11% and 0.20% by 1% increase in information and commu­
nication technologies and internal R & D activities.
Resorting to this strategy, the significant coefficients that contribute
most to the increase of the fundamental are those associated with de­
mand characteristics, followed by the costs per unit inputs. In this sense,
the dynamics of the innovative effort must point to the financing of these
activities, to increase productivity in the short term.
Declaration of competing interests
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
The authors declare the following financial interests/personal re­
lationships which may be considered as potential competing interests:
Authorship contributions
Category 1: Conception and design of study: F. Barrios Aguirre,
Acquisition of data: F. Barrios Aguirre, Analysis and/or interpretation of
data: F. Barrios Aguirre.
Category 2: Drafting the manuscript: F. Barrios Aguirre, Revising the
manuscript critically for important intellectual content: F. Barrios
Aguirre.
Category 3: Approval of the version of the manuscript to be pub­
lished (the names of all authors must be listed), F. Barrios Aguirre.

Appendix
Table 19
Summary of empirical work on innovation and productivity.

Year Author Country Related Variables Econometric Method Result

Developed countries
2001 Wakelin United Kingdom TFP, Spending on R&D Panel Associated coefficient positive and statistically
significant.
2004 Huergo and Spain TFP and product innovations Panel Associated coefficient positive and statistically
Jaumandreu significant.
2005 Argilés, Potters and Europa TFP, Spending on R&D Panel Associated coefficient positive and statistically
Vivarelli significant.
2006 Griffith et al. France, Germany, TFP, Spending on R&D, CDM Associated coefficient positive and statistically
Spain and United Innovation significant.
Kingdom
2006 Rogers United Kingdom WP, Spending on R&D OLS/Panel Associated coefficient positive and statistically
significant.
2006 Parisi, Schiantarelli Spain TFP, new products and Probit Associated coefficient positive and statistically
and Sembenelli processes and spending on significant for spending on R&D.
R&D
2009 Mairesse and Robin France WP P product and process Simultaneous Equations Associated coefficient positive and statistically
innovation significant for product innovation.
2010 Cassiman, Golovko Spain TFP, product and process Panel Associated coefficient positive and statistically
and Martinez-Ros innovation and Export significant for product and process innovation
Developing countries
2002 Benavente Chile WP, spending on R&D, new OLS Associated coefficient not significant for spending
products on R&D and new products
2004 Wang Taiwan TFP, spending on R&D Panel Associated coefficient positive and statistically
significant.
2006 Chudnovsky, López Argentina WP, new products and CDM Associated coefficient positive and statistically
and Pupato processes significant.
2011 Zhang et AL China TFP, spending on R&D Panel Associated coefficient positive and statistically
significant for more industrialized regions.
2007 Goedhuys Brazil WP, new products and OLS Associated coefficient not significant.
processes
2009 Silva Brazil TFP, spending on R&D and CDM Associated coefficient positive and statistically
Machinery and Equipment significant for product innovation and not
significant for process innovation.
2009 Britto Brazil WP, spending on R&D and Panel Associated coefficient positive and statistically
spending on Machinery and significant for spending on Machines and Equipment
Equipment
2011 Santana, Cavalcanti Brazil WP, product and process Associated coefficient Associated coefficient positive and statistically
and Bezerra innovation. positive and statistically significant.
significant.
Table 19: Source:Carvalho and Macedo de Avellar (2017).

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F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

Table 20
Heckman Pooled Regression.

Table 21
Count process innovations Regression.

VARIABLES Count process Count process Count process Count process Count process Count process
innovation (lags) innovation (lags) innovation (lags) innovation (lags) innovation (lags) innovation (lags)

Internal R & D activities (log and − 0.717 − 0.696 − 0.699 − 0.659 − 0.603 − 0.581
lags) (0.572) (0.525) (0.570) (0.524) (0.575) (0.528)
Acquisition of external R & D 0.170 0.184 0.197 0.203 0.197 0.208
(logarithms and lags) (0.343) (0.314) (0.342) (0.314) (0.345) (0.316)
Acquisition of Machinery and − 0.213 − 0.162 − 0.188 − 0.154 − 0.184 − 0.143
equipment (log and lags) (0.295) (0.270) (0.294) (0.270) (0.296) (0.271)
Marketing of Innovations (log and − 0.771* − 0.699* − 0.431 − 0.410 − 0.583 − 0.526
lags) (0.407) (0.369) (0.410) (0.371) (0.418) (0.379)
Information and communications 0.977 0.766 0.778 0.618 0.784 0.598
technology (log and lags) (0.686) (0.620) (0.685) (0.620) (0.698) (0.632)
Technology transfer (log and lags) 0.378*** 0.403*** 0.212* 0.251** 0.357*** 0.380***
(0.110) (0.101) (0.113) (0.104) (0.110) (0.101)
Technical assistance and consulting 0.234 0.350 − 0.177 − 0.0360 0.246 0.347
(log and lags) (0.539) (0.495) (0.542) (0.498) (0.541) (0.497)
Engineering and industrial design 0.682* 0.627* 0.509 0.473 0.536 0.494
(log and lags) (0.367) (0.334) (0.367) (0.335) (0.373) (0.341)
Training (log and lags) − 0.558 − 0.605* − 0.154 − 0.233 − 0.644* − 0.679*
(0.379) (0.350) (0.384) (0.355) (0.382) (0.353)
Average Physiscal total factor 0.353
productivity (log and lag) (0.254)
Physical total factor productivity 0.223
(log and lag) (0.193)
Average Demand Shocks (log and − 0.177***
lags) (0.0280)
Demand Shocks (log and lags) − 0.155***
(0.0250)
Average Costs per compound input 0.0953**
(log and lag) (0.0463)
Costs per compound input (log and 0.0843**
lag) (0.0411)
Constant − 1.075 − 0.802 0.870 0.691 0.244 0.199
(3.242) (2.965) (3.189) (2.930) (3.195) (2.937)

Observations 10,044 11,003 10,044 11,003 10,013 10,970

R-squared 0.023 0.024 0.027 0.027 0.023 0.024
Standard errors in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.
Table 21: Source:EAM-EDIT.

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F. Barrios Aguirre Social Sciences & Humanities Open 6 (2022) 100330

Table 22
Product innovations index Regression.

VARIABLES Product innovations Product innovations Product innovations Product innovations Product innovations Product innovations
index (lags) index (lags) index (lags) index (lags) index (lags) index (lags)

Internal R & D activities (log and − 0.0343 − 0.0317 − 0.0337 − 0.0304 − 0.0408* − 0.0376*
lags) (0.0240) (0.0224) (0.0239) (0.0223) (0.0241) (0.0225)
Acquisition of external R & D − 0.0423*** − 0.0417*** − 0.0406*** − 0.0405*** − 0.0479*** − 0.0472***
(logarithms and lags) (0.0144) (0.0134) (0.0144) (0.0134) (0.0145) (0.0135)
Acquisition of Machinery and 0.0513*** 0.0506*** 0.0516*** 0.0508*** 0.0493*** 0.0492***
equipment (log and lags) (0.0124) (0.0115) (0.0123) (0.0115) (0.0124) (0.0116)
Marketing of Innovations (log − 0.0701*** − 0.0728*** − 0.0521*** − 0.0567*** − 0.0843*** − 0.0855***
and lags) (0.0171) (0.0158) (0.0172) (0.0158) (0.0175) (0.0161)
Information and communications 0.0165 0.0156 0.00836 0.00843 0.0351 0.0321
technology (log and lags) (0.0288) (0.0265) (0.0287) (0.0264) (0.0292) (0.0269)
Technology transfer (log and 0.0353*** 0.0359*** 0.0258*** 0.0272*** 0.0351*** 0.0357***
lags) (0.00461) (0.00431) (0.00473) (0.00443) (0.00461) (0.00432)
Technical assistance and 0.0784*** 0.0771*** 0.0543** 0.0549*** 0.0745*** 0.0741***
consulting (log and lags) (0.0227) (0.0211) (0.0228) (0.0212) (0.0227) (0.0212)
Engineering and industrial design 0.0417*** 0.0439*** 0.0328** 0.0353** 0.0526*** 0.0537***
(log and lags) (0.0154) (0.0143) (0.0154) (0.0143) (0.0157) (0.0145)
Training (log and lags) − 0.133*** − 0.128*** − 0.110*** − 0.107*** − 0.126*** − 0.123***
(0.0159) (0.0150) (0.0161) (0.0151) (0.0160) (0.0150)
Average Physiscal total factor − 0.0128
productivity (log and lag) (0.0107)
Physical total factor productivity − 0.00943
(log and lag) (0.00825)
Average Demand Shocks (log and − 0.00936***
lags) (0.00117)
Demand Shocks (log and lags) − 0.00859***
(0.00107)
Average Costs per compound − 0.00775***
input (log and lag) (0.00194)
Costs per compound input (log − 0.00700***
and lag) (0.00175)
Constant 1.021*** 0.943*** 1.052*** 0.976*** 0.984*** 0.919***
(0.136) (0.127) (0.134) (0.125) (0.134) (0.125)

Observations 10,044 11,003 10,044 11,003 10,013 10,970

R-squared 0.143 0.141 0.149 0.146 0.144 0.142
Standard errors in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.
Table 22: Source:EAM-EDIT.

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