Do KIBS make manufacturing more innovative? An empirical investigation of four European countries

This paper estimates the innovation impact of the vertical integration of knowledge-intensive business services (KIBS) into manufacturing. The concept of an economy's vertically-integrated sectors is used in order to measure the innovative knowledge transferred directly and indirectly from KIBS to manufacturing in a production-based manner, and to estimate its impact on various proxies for manufacturing inventions. By merging OECD data on sectoral R&D and input–output tables with sectoral patent applications and patent quality indicators from the Pastat and OECD Patent Quality Indicators databases, respectively, a panel of 18 manufacturing sectors is built for the four largest European countries – France, Germany, Italy and the UK – from themid-1990s to the mid-2000s. Those industries which integrate R&D embodied in KIBS production flows more intensively and extensively are industries with greater inventive efforts and higher quality patents. In terms of policy, strengthening the linkage between KIBS andmanufacturing appears to be as crucial as supporting KIBS activities and service innovations.