Innovation and employment in manufacturing and service firms in Ghana Priscilla Twumasi Baffour & F. Ebo Turkson & Agyapomaa Gyeke-Dako & Abena D. Oduro & Emmanuel Nii Abbey Accepted: 5 November 2018 # Springer Science+Business Media, LLC, part of Springer Nature 2018 Abstract While the importance of innovation as a pri- mary source of economic growth has never been in dispute, its impact on employment has remained inde- terminate. On one hand, the pessimists indicate that firm innovation destroys jobs because of the immediate in- direct labour-saving nature of the effect of innovation, while the optimists argue that there are several compen- sation mechanisms that are known to counterbalance the initial effect of innovation and render the final effect indeterminate. Using data on a panel of 421 firms in Ghana, the paper investigates the relationship between innovation introduced at the firm level and employment. Relying on the panel fixed effects and Hausman-Taylor estimation techniques, this study finds a robust statisti- cally significant positive impact of product innovation on employment but not for process innovation. In terms of policy relevance, this finding reemphasizes the need for policy makers in Ghana to intensity efforts in pro- moting technology diffusion particularly through FDI. This study thus contributes to the literature on innovation in Africa by providing evidence on why technological innovation in the form of product innova- tion can be a panacea to alleviating employment chal- lenges in Ghana. Keywords Process innovation . Product innovation . Employment . Manufacturing . Service . Ghana JEL Classification J23 . O14 . O31 . O55 . L26 1 Introduction Technological innovation is widely considered as a pri- mary source of economic growth and policies to encour- age firm-level innovation are topical on the agenda of most countries. The firm-level relationship between in- novation and employment is an important topic of re- search. This is because the effects of innovation on employment at the firm level influence the extent to which different agents resist or encourage innovation. Innovations typically introduced at the firm level have immediate effects on employment (Garcia et al. 2004; Harrison et al. 2014). There is, however, pessi- mism in public discourse due to the fear that innovation would destroy jobs because of the direct nature of the effects of innovation on employment. Several compen- sation mechanisms, however, exist that have been shown to counterbalance the initial effect of innovation and render the final effect undetermined (see Vivarelli 1995; Pianta 2005; and Piva and Vivarelli 2005). Thus, innovation can create or destroy employment depending Small Bus Econ https://doi.org/10.1007/s11187-018-0120-7 P. T. Baffour : F. Ebo Turkson (*) : E. N. Abbey Department of Economics, University of Ghana, Accra, Ghana e-mail: feturkson@yahoo.com e-mail: feturkson@ug.edu.gh A. Gyeke-Dako Department of Finance, UGBS, University of Ghana, Accra, Ghana A. D. Oduro Department of Economics and Centre for Social Policy Studies (C.S.P.S), University of Ghana, Accra, Ghana