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-intensivebusiness services (KIBS) into manufacturing. The concept of an economy's vertically-integratedsectors is used in order to measure the innovative knowledge transferred directly and indirectlyfrom KIBS to manufacturing in a production-based manner, and to estimate its impact on variousproxies for manufacturing inventions. By merging OECD data on sectoral R&D and input–outputtables with sectoral patent applications and patent quality indicators from the Pastat and OECDPatent Quality Indicators databases, respectively, a panel of 18 manufacturing sectors is built forthe four largest European countries – France, Germany, Italy and the UK – from themid-1990s tothe mid-2000s. Those industries which integrate R&D embodied in KIBS production flows moreintensively and extensively are industries with greater inventive efforts and higher qualitypatents. In terms of policy, strengthening the linkage between KIBS andmanufacturing appears tobe as crucial as supporting KIBS activities and service innovations.