The link between innovation and productivity in Estonia's services sector

This paper investigates how the innovationproductivity relationship differs across various sub-branches of the services sector. The Crepon, Duguet and Mairesse structural model is used, consisting of equations for innovation expenditures, innovation output, productivity and exports. The data are taken from the Community Innovation Surveys for Estonia. It is shown that innovation is associated with increased productivity. The results indicate, surprisingly, that the association between technological innovation and productivity is stronger in the less knowledge-intensive service (KIS) sectors. Non-technological innovation plays a positive role especially in KISs. An indirect channel of the effects of innovation on productivity appears to function through increased exports.