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Business optimism and the innovation-profitability nexus: Introducing the COVID-19 adaptable capacity framework

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  • Lim, King Yoong
  • Morris, Diego

Abstract

In this paper we develop a novel multi-stage integrative framework for technology foresight-planning. This framework integrates econometric analysis and a technology foresight procedure to predict: (i) the most COVID-19 resilient industries at the national level; and (ii) the most adversely affected industries (due to prior investment in innovation) that requires public support. Our econometric results show that the pandemic has induced a ‘double-edge sword’ effect of innovation on firm’s COVID-19 adaptable capacity (CAC). Costly innovation undertaken before the pandemic can be bad for firms if it compounds the problem of declining post-pandemic outbreak profit and optimism. Contrarily, firm level innovation improves firm’s CAC as the prior innovators’ profitability are found to have above-even odds of rebounding quickly post-pandemic outbreak. Our empirical analysis focuses mostly on developing economies, where firms are most likely implementing only incremental (non-frontier) innovation and thus our results should be generalized with caution.

Suggested Citation

  • Lim, King Yoong & Morris, Diego, 2023. "Business optimism and the innovation-profitability nexus: Introducing the COVID-19 adaptable capacity framework," Research Policy, Elsevier, vol. 52(1).
    • Handle: RePEc:eee:respol:v:52:y:2023:i:1:s0048733322001445
    DOI: 10.1016/j.respol.2022.104623
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    More about this item

    Keywords

    COVID-19; Innovation; Profit; Industrial strategy;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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