The mediating & moderating influence of economic crises on the relationship between innovation effort and productivity

The mediating and moderating influence of economic crises on the relationship between innovation effort and productivity is studied in this thesis, using 1990-2013 data from 117 countries. Among other things, it is found that economic crises are estimated to influence productivity negatively directly, because of resource misallocation, input underutilization, poor efficiency in financial intermediation and a fall in demand. It is also found that economic crises have a positive mediating impact on productivity, through innovation effort: the exertion of innovation effort is found to have a positive effect on the amount of value a firms adds to the value chain per unit of output and as a way to maximize capacity. Also, economic crises are found to have caused an increase in innovation effort. This is probably because there was a relatively high number of highly innovative firms during the researched economic crises, compared to during other economic crises, which are more able to not decrease their innovation effort during times of economic crisis and were rewarded in the form of highly increased productivity and survival odds. Also, firms might have increased their innovation effort because they already suspected the most important finding of this thesis: the relationship between innovation effort and productivity is estimated to be more positive in times of economic crisis. This is because in the struggle for survival during economic crises, every competitive advantage acquired through innovation, is expected to have an even larger reward than in times without economic crisis. Economic crises, therefore, turn out not to be bad exclusively: although firm productivity is estimated to decrease as a direct result of economic crises, the productivity reward of exerting innovation effort is found to be higher during an economic crisis than not during one.