Impact of innovation and R&D activities on firm-level labor productivity: The case of Turkish manufacturing sector

This study analyses how various types of innovation and R&D investments impact labor productivity at the firm level within the Turkish manufacturing sector, utilizing microdata from the 2013 and 2019 World Bank Enterprise Surveys. Innovation is disaggregated into product/service, process, organizational/management, and marketing dimensions, alongside measures of external knowledge acquisition, formal training, R&D expenditure, and average wages. In order to be able to identify the impact, different firm-size categories small, medium, and large are also considered. Empirical results consistently highlight average wages as the most robust and statistically significant driver of productivity across all models and firm sizes, underscoring the pivotal role of skilled and well-compensated labor. Organizational and management innovation delivers strong positive productivity gains in medium and large firms, while marketing innovation is particularly effective in larger enterprises. Process innovation yields significant benefits primarily for small firms, whereas product/service innovation shows limited and often insignificant effects, implying longer gestation periods or the need for complementary capabilities. R&D spending, though conceptually important, exhibits weak and frequently insignificant or negative associations especially among smaller firms suggesting that absorptive capacity and strategic alignment are critical for realizing R&D returns. Formal training programs produce few productivity improvements except in large firms, pointing to potential design or delivery shortcomings. Acquisition of external knowledge emerges as a significant productivity enhancer in medium and large firms. The findings demonstrate that innovation and R&D alone cannot guarantee productivity growth without concurrent investments in workforce skills, organizational capacity, and strategic planning. Policymakers and managers should therefore adopt a holistic, size-sensitive innovation framework that prioritizes human capital development, strengthens internal management practices, and aligns R&D efforts with firm capabilities to achieve sustainable productivity improvements.