Innovation competencies and returns to scale

The relationship between firms´ innovation competencies and their economic performances is analyzed empirically. The database is constructed from an original survey of 148 large firms operating in Belgium. The empirical model relies on a Cobb-Douglas production function in which innovation competencies indicators interact with the labor variable. The econometric results suggest that the hypothesis of constant returns to scale holds. However, the development of specific innovation competencies enables firms to benefit from increasing returns to scale. These competencies improve the quality of the labor force organization, and have therefore a positive impact on labor productivity. Furthermore, the firms that perceive important internal rigidities towards innovation face potential decreasing returns to scale.