1504.0 - Methodological News, Sep 2007  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 21/09/2007   
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Exploring the Link between Innovation and Business Performance

It is generally believed that innovation is a key driver of firm-level performance. However, for Australia, quantifying the relationship between innovation and performance growth (including productivity) had been difficult because there was no single data source that contained both innovation and performance measures. The complexity of the innovation process also complicated this type of analysis.

The Australian Bureau of Statistics (ABS) developed a new business innovation survey in 2003 as a result of strong user demand for updated and internationally comparable statistics covering technological and non-technological innovation. Using this data source, a recent study undertaken by the Analytical Services Branch (ASB) explored the effect of innovation on performance growth at the individual business level. This study used business-level data from the 2003 Innovation Survey, which was augmented with performance information from the ABS Economic Activity Survey (EAS) and the Business Income Tax (BIT) and Business Activity Statement (BAS) data of the Australian Tax Office (ATO).

This research applied the Crepon, Duguet and Mairesse (CDM) framework to explore the association between innovation and business performance. The CDM is a three stage model which includes the following relationships: the innovation investment equation linking the level (if any) of innovation expenditure to its determinants; the innovation output equation relating innovation input and other determinants such as firm, industry and market characteristics to innovation output; and the business performance equation which examines the effects of innovative output and other factors on growth in business performance.

This study was exploratory in nature and is part of the ongoing overall research into the determinants of innovation expenditure and innovation output, and of the impact of these on associated firm performance in Australia. The aim of this analysis was to inform future data collection and research direction, rather than to generate definitive results.

For more information, please contact Ruel Abello on (02) 6252 6307.