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The effect of innovation on productivity: evidence from Turkish manufacturing firms

Abstract This paper systematically explores the effects of firms’ innovation activities on their productivity changes for Turkish manufacturing firms, differentiating between different typologies of innovation. We employ endogenous switching methodology, controlling for endogeneity and selection bias issues, as well as analysing counterfactual scenarios. The main finding of the study points to firm heterogeneity in terms of propensity both to innovate and to benefit from innovation activities. Our results indicate that all types of innovation activity have positive effects on the productivity of firms when compared with non-innovating firms. We find robust evidence for the differential impact of innovation on firm productivity across different innovation types. Further, this relationship alters across different phases of the economy with respect to the 2008 financial crisis.