Expanding organic relationships between R&D, innovation, and productivity: evidence from Korean SMEs

Existing evidence regarding to innovation process primarily focus on the relationship between specific factor and performance with using empirical model that estimate single equation. Although these have provided useful insights, some concerns remain regarding our understanding of innovation. First, while business does not comprise only one step but several steps that share an organic relationship according to the context, few studies simultaneously reflect and analyse the relationship between factors. Second, few assume that an outcome is related to an input as well as to the effects of the input on the outcome. In this regard, the major attention of this study is to reflect the circulative and interrelationship between R&D, innovation, and productivity. In terms of methodology, we first perform a multiple regression analysis to estimate a single equation, and, subsequently, uses the three-stage least square (3SLS) method to simultaneously estimate the interrelationship between innovation input, innovation, and productivity. As a result, we found that the organic relationship between a firm’s R&D investment, innovation, and productivity leads to a positive effect. Especially, productivity simultaneously exert an influence on an R&D investment under a systemic framework of innovation process. Our findings provide empirically supporting the argument that innovation should be understood as a systemic process.