Innovation and productivity in formal and informal firms in Ghana

Despite the high profile of the issue in current policy formulations in low-income countries (LICs), there is little large firm level survey based empirical evidence on innovativeness and firm performance, especially in informal establishments. This paper aims to fill this gap in the literature using a revised Crépon-Duguet-Mairesse (CDM) structural model to analyse data from a unique innovation survey of 501 manufacturing firms in Ghana. We find that innovation positively impacts the labour productivity of firms, technological innovations more than managerial innovations. Formal firms do not tend to be more productive than informal firms, but the role of innovation on productivity tends to be greater for formal firms.