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The Role of Demand in Fostering Product vs Process Innovation: A Model and an Empirical Test

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  • Dawid, Herbert

    (University of Bielefeld)

  • Pellegrino, Gabriele

    (EPFL, Lausanne)

  • Vivarelli, Marco

    (Università Cattolica del Sacro Cuore)

Abstract

While the extant innovation literature has provided extensive evidence of the so-called "demand-pull" effect, the possible diverse impact of demand evolution on product vs process innovation activities has not been yet investigated. This paper develops a formal model predicting a larger inducing impact of past sales in fostering product rather than process innovation. This prediction is then tested through a dynamic microeconometric model, controlling for R&D persistence, sample selection, observed and unobservable individual firm effects and time and sectoral peculiarities. Results are consistent with the model and suggest that an expansionary economic policy may benefit the diffusion of new products or even the emergence of entire new sectors.

Suggested Citation

  • Dawid, Herbert & Pellegrino, Gabriele & Vivarelli, Marco, 2017. "The Role of Demand in Fostering Product vs Process Innovation: A Model and an Empirical Test," IZA Discussion Papers 10846, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10846
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    More about this item

    Keywords

    technological change; R&D; demand-pull innovation; dynamic two tobit;
    All these keywords.

    JEL classification:

    • 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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