A growing number of studies have recently analysed the entire link between innovation
input, innovation output and productivity (CDM model), thereby trying to shed some light
into the ”black box” of the innovation process at the firm level. One problem in previous
studies is that they only use an output indicator for product innovations. Using German data
from the CIS3 (3rd Community Innovation Survey) performed in 2001, this paper enlarges the
CDM model by including an additional equation for the output of process innovations. This
new indicator is measured as the share of reduction in unit costs due to process innovations.
Estimates have shown that the growth rate of labour productivity increases significantly with
the success of product innovations, but no similar effect pertaining to process innovations is
observed.