Measuring the innovative activity of New Zealand firms

Measuring the innovative activity of New Zealand f…
01 Jun 2015

International comparisons suggest that, although the New Zealand public sector invests considerable resources into scientific research, New Zealand firms are not particularly effective at generating applied knowledge and even less so at turning it into commercial products. However, these findings are based on aggregate data and there is limited evidence on innovative activity at the firm level. This paper provides an overview of measures that capture both the inputs into and outputs from the innovative activities of New Zealand firms, using data on firm-level innovation from 2005 to 2013 available from Statistics New Zealand’s Longitudinal Business Database. The paper finds that the various measures tell different stories about the pattern of innovative activity across New Zealand firms. Notably, R&D expenditure and intensity are only weakly correlated with, and display different patterns to, measures of innovative output. For example, different types of innovation output occur in firms that do not report any investment in R&D. Accordingly, to get a full picture of the innovative activity of New Zealand firms, it is necessary to use multiple measures to get a broader picture.

This working paper was produced under the Longitudinal Business Database Partnership, along with “The impact of R&D subsidy on innovation: A study of New Zealand firms" (Jaffe and Le), released by Motu Economic and Public Policy Research. This paper focuses on firms that have received R&D grants and found that receiving an R&D grant almost doubles the probability that a firm introduces a product or service that is new to the world. However, firms that received R&D grants were no more likely to introduce organisational or marketing innovations. Although R&D grants help drive one type of innovation, other, complementary activities are needed to increase innovation across the board.

Key Results

  • The proportion of New Zealand firms engaged in innovation ranges from 0.2% to 40%, depending on how innovation is measured.
  • There is fairly high overlap (i.e., correlation) between the different measures of innovation output, but firm-level measures of R&D intensity are only very weakly correlated with the innovation output measures.
  • Both the proportion of firms engaging in R&D activity and R&D intensity have increased over time while the share of firms filing trademarks and patents has been constant. However, innovation output rates of New Zealand firms have decreased since 2005, suggesting that the productivity of New Zealand firms in converting innovation inputs into outputs may have fallen.
  • Young firms (<5 years) are more likely than older firms to introduce new goods and services and marketing methods, and have a higher percentage of sales from new goods and services. This is consistent with international evidence that new firms often bring innovations to market. However, new firms in New Zealand are no more likely than old firms to be engaged in R&D or to introduce new operational or organisational processes.
  • Firms with foreign ownership and firms that are exporting are more likely to be innovating across both input and output measures.
  • Firms in the manufacturing sector are more likely to introduce new goods and services, but firms in the services sector are just as or more likely to introduce new organisational processes and marketing methods.
  • R&D intensity shows similar patterns to other innovation measures with respect to firm size and exporting status, but different patterns across time, and with respect to firm age, region and industry.
  • There is higher persistence over time in the set of firms that do R&D and file patents than in the set that report introducing innovative outputs. This indicates that there is a small and relatively stable set of R&D-active firms, but a much larger and more distributed set of firms that introduce innovative outputs.
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