Innovation and Demand as Drivers of Labour Productivity: An Integrated Analysis for OECD Countries

The article seeks to empirically reconcile two strands of research on the determinants of labour productivity growth: on one hand, the Kaldorian literature emphasises the role of autonomous demand; on the other hand, the Schumpeterian literature underscores the role of innovative investments. Specifically, we test two hypotheses. Firstly, we investigate whether demand shocks, private research intensity, and public R&D expenditure influence labour productivity when these variables are considered simultaneously. Secondly, we examine whether private research intensity is affected by demand shocks and public investments in innovation. We make use of a panel of 12 OECD countries spanning the period from 1986 to 2017. We combine the Local Projection approach with structural shocks estimated through Structural Vector Autoregressive modelling. Findings show a positive impact of government R&D investment, demand shocks, and private research intensity on labour productivity. Additionally, when examining the effects of demand shocks and innovative activities by the public sector on research intensity, the results affirm a positive impact of these variables, thus supporting the presence of the Schmooklerian demand-pull hypothesis. These results remain robust across various model specifications and different measures of labour productivity.