Innovation strategies and employment in Latin American firms

This study examines the impact of innovation strategies on employment growth in three Latin American countries (Argentina, Chile, and Uruguay) using microdata for manufacturing firms from innovation surveys. Building on the model proposed by Harrison et al. (2008), we relate employment to three innovation strategies: “make only” (R&D), “buy only” (external R&D, licensing of patents and know-how, technical assistance, and other external innovation activities) and “make and buy” (mixed strategy). Firms that conduct in-house innovation activities (“make only”) have the greatest impact on employment; the “make and buy” strategy comes in second. Similar results are found for small firms. These results highlight the importance of fostering in-house technological efforts not only for innovation per se, but also to promote growth in firm employment. The impact of “make only” strategies is greater in high-tech industries, whereas “make only” and “make and buy” have a similar impact on employment in low-tech industries. Finally, the study provides evidence of the mechanisms through which innovation strategies affect employment. The findings show that innovation strategies enhance technological innovation, but their impact differs between product and process innovation. Product innovation is mainly motivated by in-house technology investments, followed by mixed strategies, whereas process innovation is basically driven by “buy” strategies.

► Firms that conduct R&D exclusively or in combination with external technology are more prone to innovate and generate employment than firms that only rely on “buy” strategies. ► Product innovation is mainly motivated by “make” followed by “make and buy” strategies whereas process innovation is basically driven by “buy” strategies. ► The impact of “make only” on employment is greater in high-tech industries. ► “Make only” and “make and buy” strategies have a similar impact in low-tech industries.