Innovation Effects of Information and Communication Technologies: Evidence from Canadian Firms

The productivity effects of information and communication technology (ICT) as a general-purpose technology, have been extensively researched, but evidence on the impact of ICT on innovation in the economy is limited. ICT can drive innovation through direct and indirect channels. Directly, ICT can deepen capital investment in the knowledge-creation process by lowering its relative prices, leading to complementary investments in innovation. Indirectly, ICT can create spillover effects due to its network characteristics and interactions with other factors that influence innovation, such as human capital and organizational structure. In this study, we investigate the direct and indirect impacts of ICT on product and process innovations using a panel of Canadian Workplace and Employee Survey (WES) data from 1999 to 2005, a period during which ICT was booming. We also examine the impacts of various characteristics of employers and employees, such as training, size, market, gender, education, and experience, on innovation. Our mixed logit model estimation results support the positive effects of ICT on four types of product and process innovations in different industries. Furthermore, the results suggest that ICT has an indirect impact on innovation through its interactions with organizational changes. To address potential endogeneity issue, we also estimate the average treatment effect on treated using the propensity score-matching method.