Profits, R&D and Innovation: a Model and a Test
AbstractIn this article we investigate – both conceptually and empirically – the relationship between three interconnected elements of the Schumpeterian “engine of progress”: the ability of industries’ R&D efforts to turn out successful innovations; the ability of innovations to lead to high entrepreneurial profits; the commitment of industries to invest profits in further technological efforts. We build a simultaneous three-equation model – with appropriate lags – and we test it at industry level – for 38 manufacturing and service sectors – on eight European countries over two time periods from 1994 to 2006. The results show that the model effectively accounts for the dynamics of European industries. Our main results are that demand and innovation are the key determinants for firm profitability; second that both technology adoption and R&D concur to improve innovative performance; third, that R&D is path dependent and is negatively related to the distance from the frontier. Finally, manufacturing and services show similar behaviour.
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Bibliographic InfoPaper provided by Institute of Prospective Technological Studies, Joint Research Centre in its series JRC-IPTS Working Papers on Corporate R&D and Innovation with number 2010-05.
Length: 23 pages
Date of creation: May 2010
Date of revision:
Profits; R&D; Innovation; System Two Stages Least Squares;
Other versions of this item:
- L6 - Industrial Organization - - Industry Studies: Manufacturing
- L8 - Industrial Organization - - Industry Studies: Services
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-17 (All new papers)
- NEP-CSE-2010-07-17 (Economics of Strategic Management)
- NEP-ENT-2010-07-17 (Entrepreneurship)
- NEP-INO-2010-07-17 (Innovation)
- NEP-IPR-2010-07-17 (Intellectual Property Rights)
- NEP-SBM-2010-07-17 (Small Business Management)
- NEP-TID-2010-07-17 (Technology & Industrial Dynamics)
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- Liu, Xiaohui & Hodgkinson, Ian R. & Chuang, Fu-Mei, 2014. "Foreign competition, domestic knowledge base and innovation activities: Evidence from Chinese high-tech industries," Research Policy, Elsevier, vol. 43(2), pages 414-422.
- Matteo Lucchese & Mario Pianta, 2012.
"Innovation and Employment in Economic Cycles,"
Comparative Economic Studies,
Palgrave Macmillan, vol. 54(2), pages 341-359, June.
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