Product and Process Innovation: Determinants and Dynamic Effects on Firm Growth

Yojiro Ito and Harumasa Shirakawa
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Yojiro Ito: Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: youjirou.itou@boj.or.jp)
Harumasa Shirakawa: Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: harumasa.shirakawa@boj.or.jp)

No 25-E-18, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: The invention of new goods or services, called product innovation, and improvements in production processes, called process innovation, can have distinct impacts on firm performance. By integrating firm-level innovation survey data with financial panel data in Japan, our empirical analysis yields two key findings. First, the increasing prevalence of process innovation over product innovation has been observed over the past two decades. Second, higher market growth stimulates product innovation, which, in turn, contributes to growth in firm sales and employment over several years. In contrast, no such patterns are observed for process innovation. These results suggest that there may be a positive feedback loop between product innovation and firm growth.

Keywords: Economic Growth; Productivity; Product Innovation; Process Innovation (search for similar items in EconPapers)
JEL-codes: D22 L1 L25 L53 O25 O31 (search for similar items in EconPapers)
Date: 2025-12
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