From knowledge to added value: A comparative, panel-data analysis of the innovation value chain in Irish and Swiss manufacturing firms

► The innovation value chain comprises gathering, transformation and exploitation of knowledge. ► The study is a comparative panel data analysis in Ireland and Switzerland. ► Strong complementarities emerge between firms’ internal and external knowledge. ► In-house R&D and links to customers prove important drivers of innovation. ► Innovation drives productivity growth in different ways in the two countries. The innovation value chain (IVC) divides the innovation process into three separate links or activities: knowledge gathering, knowledge transformation and knowledge exploitation. Here, we report a comparative panel data analysis of the IVC in Ireland and Switzerland. Both economies are small, very open and depend significantly on innovation to maintain competitive advantage. In recent years, however, R&D and innovation growth in Ireland has been markedly stronger than that in Switzerland. We investigate these differences through the ‘lens’ of the IVC. Significant similarities exist between some aspects of firms’ innovation behaviour in each country: strong complementarities emerge between external knowledge sources and between firms’ internal and external knowledge. And, in both countries, in-house R&D and links to customers prove important drivers of innovation. Innovation drives productivity growth in different ways in the two countries, however, through product change in Switzerland and through process change in Ireland. Other differences in the determinants of innovation performance linked to ownership and firms’ institutional context emphasise the systemic nature of innovation and the legacy of past patterns of industrial development.