The impact of industry 4.0 on innovation performance: Insights from German manufacturing and service firms

Abstract The new type of industrialization called Industry 4.0 is gaining increasing importance for manufacturing and service firms, by interconnecting information and communication technologies with production facilities. Using representative firm-level data of 4,121 German firms, I analyze how the adoption of Industry 4.0 impacts innovation performance. The analysis is based on bivariate regression models, whereas Lewbel’s instrumental variable methods with generated instruments support robustness and causality of the findings. The results reveal that Industry 4.0 increases the propensity to create product innovations and has a positive impact on the intensity of product innovation in the service sector compared to manufacturing firms.