Innovation, Public Support, and Productivity in Colombia. A Cross-industry Comparison

Abstract

Summary We investigate the association between perceived barriers to innovation and the allocation of public support for innovation in manufacturing and service industries in Colombia, as well as the potential heterogeneity of returns to innovation across the firm-level productivity distribution. Extending the CDM recursive system, we include an equation for the allocation of direct support and use quantile regression methods to estimate the productivity equation. We find some differences across manufacturing and service industries. Financing constraints are correlated with obtaining public support in manufacturing and in some services, but in knowledge-intensive services (KIS) barriers associated with regulations are more significant. The introduction of innovations increases mostly the productivity of firms below the median of the productivity distribution, especially in services. Increasing human capital would boost productivity of firms in all industries, providing support to the hypothesis that human capital is indeed a bottleneck for productivity growth across the board in Colombia. We conclude that addressing factors that hinder innovation by low-productivity firms in all service industries could significantly contribute to increasing productivity and reduce its dispersion.