Innovation and Firm Performance Across Portuguese Municipalities: The Role of Patents

Abstract

We examine a dataset, which until now remained unused, on the requests and awards of patents and industrial designs for the universe of mainland Portuguese municipalities. We use it to assess the impact of innovation on firms’ sales and value added. Using micro data firm performance by municipality for the period 2006-2012, we estimate that patents awarded impact sales and value added in the three years that follow, initially by decreasing and then by increasing financial performance indicators. The impact of innovation is most evident in value added and during crisis years. It is less evident in sales, works carried out through industrial businesses and medium and large-sized firms (measured by the number of employees). We also find that unemployment decreases, with a lag, in municipalities where the number of patents awarded increased. When we measure patents awarded with the number of patents requested and the number of tertiary education professors, we uncover a causal relation between innovation and increases in value added, and less so between innovation and sales.