R&D, innovation and labour productivity: Evidence from the manufacturing sector in Ghana

The One District One Factory (1D1F) initiative by the Government of Ghana, designed to boost manufacturing across all districts, has the potential to achieve substantial growth in the sector through the strategic use of R&D to enhance labour productivity. The existing empirical literature falls short in exploring the role of R&D in influencing innovation and ultimately labour productivity within the manufacturing sector of Ghana as well as other developing economies with similar characteristics. This study addresses this gap by examining the role of R&D on labour productivity in the manufacturing sector using a structural equation model encompassing R&D, innovation, and labour productivity. Data was sourced from the World Bank Enterprise Survey (WBES) involving 209 firms in Ghana. The study employs Three-Stage Least Squares (3SLS) method with its capacity to mitigate issues related to endogeneity and simultaneity bias in simultaneous equations in contrast to other econometric techniques. The 3SLS method was used to examine the effect of R&D on innovation and labour productivity in the manufacturing sector of Ghana. The results highlight the multifaceted determinants of labour productivity in Ghana's manufacturing sector, emphasizing the positive impact of R&D. R&D also significantly influence both product and process innovation. These findings are useful for the development of human capital in Ghana. Thus, the study recommends the integration of R&D into Ghana's national development strategy toward improvement in human capital to create a conducive environment for local manufacturing firms and the 1D1F initiative, to actively engage in R&D to enhance labour productivity.