The Handbook of Innovation and Services
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The Handbook of Innovation and Services

A Multi-disciplinary Perspective

Edited by Faïz Gallouj and Faridah Djellal

This Handbook brings together 49 international specialists to address an issue of increasing importance for the world’s post-industrial economies; innovation as it relates to services.
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Chapter 27: The Innovation Gap and the Performance Gap in the Service Economies: A Problem for Public Policy

Faridah Djellal and Faïz Gallouj


Faridah Djellal and Faïz Gallouj1 27.1 Introduction Whether at micro- or macroeconomic level, the main purpose of innovation is to increase economic performance. In economies now largely dominated by services, an analysis of this relationship reveals a paradox that a British government agency (NESTA, 2006) describes as an ‘innovation gap’. The innovation gap measures the difference between the reality of innovation produced in an economy and what traditional innovation indicators perceive. In the British case, this has been expressed in the 1990s and early 2000s by the observation that a relatively weak innovativeness (compared to other countries) causes relatively high economic performance. This gap is explained in particular by the fact that a significant part of innovation in services (in particular its non-technological forms) escapes measurement using traditional tools (for example research and development, patents). This argument is not new, as it has been at the heart of economic literature on innovation in services since the early 1990s (Gallouj, 1994, 2002; Sundbo, 1998; Metcalfe and Miles, 2000; Miles, 2002). However, in a services economy, the problem is not only in the definition and measurement of innovation. It also lies in the definition and measurement of performance. One can thus identify a second ‘gap’, that we propose to call ‘performance gap’. The performance gap measures the difference between the reality of performance in an economy and the performance assessed by traditional economic tools (mainly productivity and growth). The performance gap reflects the hidden performance, invisible to these tools (performance in...

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