Innovation and Productivity in Formal and Informal Firms in Ghana

Abstract

"Despite the high profile of the issue in current policy formulations in low-income countries (LICs), there is little empirical evidence on innovativeness and firm performance in formal and informal establishments. This paper aims to fill this gap in the literature using a revised Crépon-Duguet-Mairesse (CDM) structural model to analyse data from a unique innovation survey of 500 manufacturing firms in Ghana. We find that innovation positively impacts the labour productivity of firms, and non-technological instead of technological based innovations are the significant factor. The effect is significantly greater for informal establishments. We suggest that surviving of some informal firms may be linked to their ability to innovate."