innovation, but does not have information on the extensive margin. This contrasts with the information available in the Community Innovation Surveys (CIS) recently conducted in most European countries by the OECD (e.g., OECD, 1992; Evangelista et al., 1997; Criscuolo et al., 2005; Mohnen et al., 2006). Nevertheless, relative to the CIS datasets, our data has the advantage of collecting information on fi rm characteristics for all the fi rms in the sample while in most countries CIS datasets collect that information only for fi rms that innovate.<sup>12</sup> Table 1 reports the average share of fi rms engaged in technological innovations across continents and industries and Figure 1 shows this average for each country in our sample. The evidence shows that a large share of fi rms report being engaged in technological innovations (56.1%) but also that there is signi fi cant heterogeneity across countries.<sup>13</sup> Egypt and Uzbekistan show up as the countries with the lowest frequency of technological innovations while Thailand and Brazil report the highest frequencies in our sample. Table 1 also shows substantial heterogeneity in the degree of technological innovation across industries. Traditional industries tend to have fewer innovative fi rms while high-tech industries tend to have more. The most innovative industries are electronics and auto-parts while the least innovative are paper and food.<sup>14</sup> To assess whether our innovation measure is economically meaningful, we analyze its correlation with relevant fi rm outcomes. Figure 2 plots the kernel density of labor produc-

> 12One exception is the CIS dataset for the UK, used by Cricuolo et al. (2005), which collects information on fi rm characteristics for all fi rms, regardless of their innovation status.

> 13Firms in our sample are more likely to engage in product innovation (68.8%) than in technological innovation (56.1%). This fi nding holds across industries and countries, with the exceptions of electronics and auto-parts as well as China, Malaysia, and Thailand. But different fi rms engage in the two types of innovation since the average propensity to engage in technological or product innovation is 77.6%. The average share of fi rms that engage in both types of innovation is 47.5%, while the probability of engaging in product innovation for fi rms that have also introduced technological innovations is 84.7%. The latter shows that technological innovations are likely to result in changes in product design and quality and thus new or improved products. However, engaging in technological innovations does not result in product innovation with certainty.

> 14Using the CIS datasets for 10 countries, Evangelista et al. (1997) fi nd that the average propensity of European fi rms to introduce process (technological) or product innovations is 53%. The comparable average in our sample is much higher, 78%. This difference holds even within industries. In European countries, the average propensity to innovate in the electronics (textiles) industry is 67% (33%), which compares with an average of 82% (77%) in our sample. The ranking of industries is very similar across the two samples. This difference in the propensity to innovate across the two samples can be explained by managers in developing countries being more likely to report small changes in technology or products as being an innovation than managers in developed countries.

9