Promoting Innovation in the Services Sector: Toward Productivity and Competitiveness

The services sector is increasingly important to the economies of Latin America and the Caribbean, but productivity remains relatively low. Boosting innovation in services will be central to improving the performance of this sector and the economy as a whole.

As developing countries transform from agricultural and industrial economies to those driven by information and knowledge, the services sector has become more important to national economic growth and sustainability. By improving efficiency, knowledge, and technology, the services sector can have a positive impact on the national economy. According to the World Bank, the average value added by the services sector in Latin America is 60% of gross domestic product (GDP) and employs 59% of the total workforce. However, while the role of the services sector has been increasing, growth in productivity is low compared to manufacturing, and has been pulling down aggregate productivity levels. Research conducted by the Inter-American Development Bank (IDB) shows that innovation can have a positive effect on productivity growth, although the evidence comes almost exclusively from the manufacturing sector.

Led by Centro de Investigaciones Económicas, the project will examine the role of innovation in the services sector. It will do so by producing case studies analyzing specific innovative strategies implemented by various firms and then determining the impact of different policy frameworks and interventions. The project is part of a larger initiative looking at the innovation, competitiveness, and productivity of small and medium enterprises (SMEs) in the region's services sector. Simultaneously, the IDB will conduct a complementary study on innovation among service SMEs. The IDB study will produce sound and comparable evidence on the determinants of innovation and productivity in market services by analyzing innovation surveys it collected previously in Central America.

Researchers will engage and exchange knowledge with policymakers responsible for promoting innovation and competitiveness in the region. In addition to regular communication and meetings, the project will host two workshops: one at the outset to get researchers and policymakers to agree on areas for research that are relevant to policy, and the other at the end of the project to share research findings and policy recommendations with key actors in the sector.

The research will generate a comparative analysis of private-public intervention in service innovation for service SMEs in the region. A book or a special issue of a peer-reviewed journal, as well as comparative papers and policy briefs will be published.

Ultimately, the project aims to inform public policies that foster innovation in the services sector and correct the bias against services in regional policy. It will also increase policymakers' knowledge about whether and how to intervene in the sector and will help government and private sector agencies improve their ability to enhance innovation among SMEs.

Project ID

106966

Project status

Closed

Start Date

Sunday, April 1, 2012

End Date

Wednesday, March 12, 2014

Duration

20 months

IDRC Officer

Petrazzini, Ben

Total funding

CA$ 426,700

Countries

North and Central America, South America, West Indies

Program

Employment and Growth

Project Leader

Diego Aboal

Institution

Centro de Investigaciones Económicas

Institution Country

Uruguay

Institution Website

http://www.cinve.org.uy