External Interaction, Innovation and Productivity: An Application of the Innovation Value Chain to Ireland

Abstract

This paper analyses the innovation value chain for the Irish Community Innovation Survey (CIS): 2004-2006. In estimating innovation and productivity simultaneously, it extends the CDM methodology to include a range of external knowledge sources. Feedback effects are found to be vital, with more productive firms being more innovative and vice versa. External knowledge sources affect the innovation decision but not innovation performance, thus pointing to the primacy of internal processes for the crucial task of knowledge exploitation. There is evidence of dichotomous knowledge sourcing in Ireland, with some firms sourcing from market and others, especially high-technology businesses, from non-market agents.