The impact of process innovations on firm's productivity growth: the case of Spain

The main aim of this paper is to investigate about the effect that a measure of the process innovation performance of a firm has on its labour productivity growth. This analysis is mainly a consequence of two considerations. The first one results from a clear differentiation of the role that product and process innovations have on a firm's performance. The second one is to assume that the knowledge capital of a firm is mainly composed by its successful research. The study demonstrates that process innovation has a positive and significant effect on firm's productivity growth. Moreover, this result is robust under a wide range of alternative specifications and, in any case, the variable behaves much better than R&D intensity. Following previous research, the detected quadratic relationship between vertical product differentiation and process innovation performance leads to the existence of some firms for which there exist a trade-off between quality and productivity.