An empirical model of the sources of innovation in the U.S. manufacturing sector

This paper estimates a simple model of innovation in the U.S. manufacturing sector and derives summary indicators of product and process innovation. Our empirical work reveals that the drivers of innovation extend well beyond business research and development spending. Capital investment, cutting-edge scientific output from academic institutions, and the growth of the science and engineering workforce all matter. The dynamic structure of our model suggests that policymakers must look beyond the short-term when developing and evaluating innovation initiatives because there can be lags of several years before inputs are fully realized in innovative performance. But simple simulations conducted with our equations indicate that even a modest increase in key innovation inputs reaps significant benefits. © 2007 National Association for Business Economics.