WHAT IS THE ROLE of innovation in productivity growth, and to what extent has a change in either the pace or the character of innovation contributed to weak productivity growth in the past fifteen years? We have collected new data on innovation that support the view that a slowing of innovation played an important part in the decline in productivity growth. We report here the first stage in an in-depth investigation of productivity in particular industries. This first stage focuses on two manufacturing industries, chemicals and textiles. Certainly, more industries are needed to verify the findings, but the two industries chosen provide a good contrast. The chemical industry is capital-intensive and processbased, and relies heavily on its own research and development. The textile industry is less capital-intensive, uses an equipment-based technology, and relies primarily on externally generated innovations.