Determinants of Innovation and Productivity in the Service Sector in Mexico

Drawing on survey data about firms in Mexico, we investigate the determinants of innovation and the linkages between innovation and productivity in the services sector. We apply a three-stage Crépon-Duguet-Mairesse (CDM) econometric model; the use of manufacturing firms as a benchmark helps to better appreciate our findings. We find that a series of structural, performance, and behavioral factors increase a firm’s propensity to invest in innovation, but some differences arise between services and manufacturing firms. Intensive investment in innovation leads to superior innovation performance, while innovation output has a positive effect on labor productivity.