Innovation and Firm-Level Productivity: Evidence from Bangladesh

In this paper, the labor productivity impact of manufacturing firms' innovation in Bangladesh, a region which has, to date, been understudied in this respect, is examined through World Bank Enterprise Survey data from 2003 to 2006. We apply the Cobb-Douglas production function, augmented with innovation-related inputs (and other expected sources of productivity) in a simultaneous three-equation system connecting R&D to its determinants, innovation output to R&D, and productivity to innovation output; and in a two-equation system connecting innovation output to its determinants and productivity to innovation output. Our results reveal that Bangladeshi firms' process innovation is an important factor for their labor productivity, whereas the significant effect of product innovation is not clearly established.