Firms' Innovation,Public Financial Support,and Total Factor Productivity: The Case of Manufactures in Peru

Based upon an adjusted Crepon–Duguet–Mairesse (CDM) model, this paper analyzes the relationship between investment intensity, public financial support, innovation, and total factor productivity (TFP) for a sample of manufacturing firms of Peru with data obtained from the 2004 survey of science, technology, and innovation (STI) activities. The estimation of the model indicates that large firms are more likely to invest in STI activities and firms' size increases the probability of producing technological inovation (TI) and non‐technological innovation (NTI). STI firms' investment intensity and public financial support have also helped manufacturing firms to increase the probability of producing TI outcomes. Further, such support may have increased firms' investment on STI activities. The innovation effects on TFP, however, were statistically not clear or robust. Thus, whereas investment intensity did increase firms' TPF in low‐tech manufacturing firms, this is not the case for high‐tech firms. For this group of firms, relatively high capital–labor ratio and the availability of a high level of human capital seem to promote higher levels of TFP.