Empirical analysis of innovation and productivity in services firms: the case of South Africa

The purpose of this paper is to investigate the impact of innovation on productivity in the services sector firms in South Africa. Using a three-stage econometric model we find that service sector firms are innovative. We show that firm size, public financial support, patent protection and market sources of information have a positive impact on the decision to innovate. The level of investment in innovation significantly influences the success of both technological and nontechnological innovations in service sector firms. The results find that both technological and non-technological innovations have a positive impact on labour productivity, with a greater impact from non-technological innovation.