Measuring the Prevalence and Direction of Innovation: A Pilot Approach using LLMs

Prashant Garg, Peter John Lambert, Ralf Martin and Denis Medvedev
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Prashant Garg: Bocconi University
Peter John Lambert: University of Warwick & London School of Economics
Ralf Martin: Imperial College London, Centre for Economic Performance and CEPR

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: This paper pilots a method for measuring firms' product and process innovation at scale. Our approach uses LLMs to complete a detailed innovation survey for a sample of 600,000 companies operating across 40 countries. The preliminary results contain 6 million individual instances of innovative activity along with rich textual descriptions. These responses carry signal, for example a one-standard-deviation increase in a firm's product innovation index is associated with a 5% higher measured TFP residual. The data reveal that innovation is widespread: two-fifths of companies engage in product innovation and one-quarter in process innovation, far exceeding the share of patenting firms. Firms are more likely to have labor-augmenting than labor-saving introductions, while about 14% have green product in novation and 12% have green process innovation. Greenness and net labor augmentation are positively associated across countries. Beyond our specific application, this paper illustrates the potential for using LLMs to generate survey-level insights at population scale.

Keywords: Innovation direction; Green innovation; Automation; LLMs; AI measurement; Patents JEL Classification: O30; O31; O33; O34; Q55; J24 (search for similar items in EconPapers)
Date: 2026
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https://warwick.ac.uk/fac/soc/economics/research/c ... tions/wp825.2026.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:825

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