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Is Money All? Financing Versus Knowledge and Demand Constraints to Innovation

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  • Gabriele Pellegrino

    (Barcelona Institute of Economics - University of Barcelona, Barcelona, Spain
    Università Cattolica del Sacro Cuore, Piacenza and Milano)

  • Maria Savona

    ()
    (SPRU, University of Sussex, UK)

Abstract

The paper adds to the scattered empirical evidence on the role of obstacles to innovation in a three-fold way. First, we correct for the usual sample selection bias by filtering out firms not interested in innovation from 'potential innovators'. We then analyse the impact of obstacles on the translation of firms' engagement in innovative activities onto actual innovative outputs. Second, we assess what mostly affects firms' rate of failure in this process, whether finance or, rather, knowledge or demand-related constraints. Third, we do so in a panel framework, which allows to account for endogeneity and firms' unobserved heterogeneity through individual effects. We find that demand- and market-related factors are as important as financing conditions in determining firms' innovation failures. This evidence puts much of the latest hype on finance in perspective and brings back into the picture traditional demand and market structure arguments of why firms fail to innovate. The empirical analysis is based on an unbalanced panel of firm data from four waves of the UK Community Innovation Survey (CIS) between 2002 and 2010 merged with the UK Business Structure Database.

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Bibliographic Info

Paper provided by SPRU - Science and Technology Policy Research, University of Sussex in its series SPRU Working Paper Series with number 2013-01.

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Date of creation: 09 Oct 2013
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Handle: RePEc:sru:ssewps:2013-01

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References

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  1. Pierre Mohnen & Lars-Hendrick Röller, 2003. "Complementarities in Innovation Policy," CIRANO Working Papers 2003s-60, CIRANO.
  2. Dominique Tourigny & Can Le, 2004. "Impediments to innovation faced by Canadian manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(3), pages 217-250.
  3. 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.
  4. D’Este, Pablo & Iammarino, Simona & Savona, Maria & von Tunzelmann, Nick, 2012. "What hampers innovation? Revealed barriers versus deterring barriers," Research Policy, Elsevier, vol. 41(2), pages 482-488.
  5. 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.
  6. 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.
  7. 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.
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  12. 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.
  13. Hall, Bronwyn, 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series qt5rf0x9gz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  19. Pablo D'Este & Francesco Rentocchini & Jaider Manuel Vega Jurado, 2010. "Lowering barriers to engage in innovation: evidence from the Spanish innovation survey," Openloc Working Papers 1020, Public policies and local development.
  20. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  21. Jaeyong Song & Paul Almeida & Geraldine Wu, 2003. "Learning--by--Hiring: When Is Mobility More Likely to Facilitate Interfirm Knowledge Transfer?," Management Science, INFORMS, vol. 49(4), pages 351-365, April.
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Cited by:
  1. Vásquez-Urriago, Angela & Barge-Gil, Andrés & Modrego, Aurelia, 2014. "Which firms benefit more from being located in a Science and Technology Park? Empirical evidence for Spain," MPRA Paper 55130, University Library of Munich, Germany.
  2. Marin,Giovanni & Marzucchi,Alberto & Zoboli,Roberto, 2014. "SMEs and Barriers to Eco-Innovation in EU: A Diverse Palette of Greens," INGENIO (CSIC-UPV) Working Paper Series 201404, INGENIO (CSIC-UPV).
  3. José García-Quevedo & Gabriele Pellegrino & Maria Savona, 2014. "Reviving demand-pull perspectives: the effect of demand uncertainty and stagnancy on R&D strategy," Working Papers 2014/11, Institut d'Economia de Barcelona (IEB).
  4. Heike Belitz & Anna Lejpras, 2014. "Financing Patterns of Innovative SMEs and the Perception of Innovation Barriers in Germany," Discussion Papers of DIW Berlin 1353, DIW Berlin, German Institute for Economic Research.

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