An analysis of the impact of technological innovation on productivity in South African manufacturing firms using direct measures of innovation

While manufacturing is regarded as important for economic growth, there is evidence that productivity in the South African manufacturing sector has been relatively low compared to international standards. As the international literature shows a positive correlation between innovation and productivity, it is pertinent to investigate the role that innovation plays in this sector. South Africa is lagging behind other emerging market countries in terms of technological progress, and innovation efforts are deemed insufficient particularly in private firms. While there have been studies that measure the impact of R&D (as an innovation input) on productivity, the direct impact of innovation success on productivity has not been estimated in South Africa before. The business innovation survey (BIS) provides data that allow us to estimate these direct effects, thereby enabling this study to make an important contribution to the South African literature in this area of research. We estimate the effect of technological innovations on firm productivity using a sample of manufacturing firms from the BIS 2014-2016 data. Using a variation of the CDM model, we find that the introduction of product or process innovations has significant positive effects on productivity in South African manufacturing firms.