Date of Award


Document Type

Honors Thesis (Open Access)


Colby College. Economics Dept.


Andreas Waldkirch


This paper investigates a lesser-known effect of innovation on the productivity of manufacturing firms in China using data that cover more than 330,000 firms across 40 sectors from 1998 to 2008. Innovation plays a key role in the productivity of firms and it matters for all types of firms, new as well as established. The ratio of new product output to the firm’s total outputs is used to measure innovation ability in this paper. A higher ratio is expected to have a positive impact on a firm’s productivity since new products are likely to be more differentiated than old products from other firms’ goods, which allows for a higher mark-up and thus greater profits. Comparisons are conducted for different types of firms, domestic firms, foreign firms and Hong Kong, Macau, Taiwan-affiliated firms. I also implement different measures of productivity, such as total factor productivity and labor productivity. After controlling for a number of factors, I find a significantly positive relationship between innovation and productivity across all types of firms in China.


innovation, productivity, foreign direct investment, firm level data, China