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Reviving demand-pull perspectives: the effect of demand uncertainty and stagnancy on R&D strategy

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Author Info

  • José García-Quevedo

    ()
    (Universitat de Barcelona & IEB)

  • Gabriele Pellegrino

    ()
    (University of Barcelona & IEB)

  • Maria Savona

    ()
    (University of Sussex)

Abstract

This paper looks at the effects of demand uncertainty and stagnancy on firms’ decisions to engage in R&D activities and the amount of financial effort devoted to it. The paper contributes to the innovation literature in three respects: first, it adds to the revived debate on demand-pull perspectives in innovation studies, by specifically looking at demand-related (lack of) incentives to invest in innovation. Also, importantly, it complements the emerging literature on barriers to innovation in a two-fold way: first, by focusing on demand-related obstacles rather than the more explored financial barriers; second, by analyzing in detail whether experiencing uncertainty or lack of demand is a sector-specific feature, namely whether firms active in high or low tech manufacturing or in knowledge intensive or low tech services are more or less dependent on demand conditions when deciding to perform R&D. We find that uncertain demand and lack of demand are perceived as two completely different barriers. While uncertainty on demand does not seem to constrain R&D efforts, the perception of lack of demand does strongly reduce not only the amount of investment in R&D but also the likelihood of firms to engage in R&D activities. We interpret this evidence in terms of the specific phase of the innovation cycle in which decisions to invest in R&D are taken. Sectoral affiliation does not seem to matter when it relates to demand conditions, supporting the conjecture that positive expectations on market demand is a structural and necessary condition to be fulfilled for all firms prior to invest in R&D.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2014/11.

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Length: 45 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:ieb:wpaper:2013/6/doc2014-11

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Keywords: R&D strategy; barriers to innovation; demand uncertainty; lack of demand; innovative inputs; panel data;

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References

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  1. Hottenrott, Hanna & Peters, Bettina, 2012. "Innovative capability and financing constraints for innovation: More money, more innovation?," ZEW Discussion Papers 09-081 [rev.2], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Maria Luisa Mancusi & Andrea Vezzulli, 2010. "R&D, Innovation and Liquidity Constraints," KITeS Working Papers 030, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2010.
  3. Pierre Blanchard & Jean-Pierre Huiban & Antonio Musolesi & Patrick Sevestre, 2013. "Where there is a will, there is a way? Assessing the impact of obstacles to innovation," Industrial and Corporate Change, Oxford University Press, vol. 22(3), pages 679-710, June.
  4. Frederique Savignac, 2008. "Impact Of Financial Constraints On Innovation: What Can Be Learned From A Direct Measure?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(6), pages 553-569.
  5. Aghion, Philippe & Askenazy, Philippe & Berman, Nicolas & Cette, Gilbert & Eymard, Laurent, 2012. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Scholarly Articles 12490632, Harvard University Department of Economics.
  6. Roberto Fontana & Marco Guerzoni, 2008. "Incentives and uncertainty: an empirical analysis of the impact of demand on innovation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 927-946, November.
  7. Alessandra Canepa & Paul Stoneman, 2008. "Financial constraints to innovation in the UK: evidence from CIS2 and CIS3," Oxford Economic Papers, Oxford University Press, vol. 60(4), pages 711-730, October.
  8. Pellegrino, Gabriele & Savona, Maria, 2013. "Is money all? Financing versus knowledge and demand constraints to innovation," MERIT Working Papers 029, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  9. Galia, Fabrice & Legros, Diego, 2004. "Complementarities between obstacles to innovation: evidence from France," Research Policy, Elsevier, vol. 33(8), pages 1185-1199, October.
  10. Edler, Jakob & Georghiou, Luke, 2007. "Public procurement and innovation--Resurrecting the demand side," Research Policy, Elsevier, vol. 36(7), pages 949-963, September.
  11. Simona Iammarino & Francesca Sanna-Randaccio & Maria Savona, 2007. "The perception of obstacles to innovation. Multinational and domestic firms in Italy," Working Papers of BETA 2007-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
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