IDEAS home Printed from https://ideas.repec.org/p/uto/dipeco/202316.html
   My bibliography  Save this paper

Artificial Intelligence and Firm Innovation: The Resource-Allocation Perspective

Author

Listed:

Abstract

Extant research has established that firms increase absorptive capacity to engage in knowledge sourcing and technology adoption and to create knowledge internally to achieve two strategically important objectives: to become more innovative and commercialize innovation. We shift this conversation to a new direction by asking the question of how the adoption of Artificial Intelligence (AI) technology changes firm’s choice on resource allocation and shapes innovation performance. Using novel data on 14,143 UK firms over 2004-2020 and the two-step procedure to deal with endogeneity in innovation function, we find an inverted U-shape relationship between internal and external resource allocation and firm innovation and AI reduces the cost of knowledge investment, when these costs are high. Taken together, these results call for a fundamental rethinking of the resource allocation mechanisms and strategies used for firm innovation.

Suggested Citation

  • Colombelli, Alessandra & Belitski, Maksim & D’Amico, Elettra, 2023. "Artificial Intelligence and Firm Innovation: The Resource-Allocation Perspective," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202316, University of Turin.
    • Handle: RePEc:uto:dipeco:202316
    as

    Download full text from publisher

    File URL: https://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2023dip/wp_16_2023.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. René Belderbos & Martin Carree & Boris Lokshin & Juan Fernández Sastre, 2015. "Inter-temporal patterns of R&D collaboration and innovative performance," The Journal of Technology Transfer, Springer, vol. 40(1), pages 123-137, February.
    2. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    3. Desouza, Kevin C. & Dawson, Gregory S. & Chenok, Daniel, 2020. "Designing, developing, and deploying artificial intelligence systems: Lessons from and for the public sector," Business Horizons, Elsevier, vol. 63(2), pages 205-213.
    4. Bernal, Pilar & Carree, Martin & Lokshin, Boris, 2022. "Knowledge spillovers, R&D partnerships and innovation performance," Technovation, Elsevier, vol. 115(C).
    5. Jaffe, Adam B & Lerner, Josh, 2001. "Reinventing Public R&D: Patent Policy and the Commercialization of National Laboratory Technologies," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 167-198, Spring.
    6. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
    7. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    8. Venkat Kuppuswamy & Belén Villalonga, 2016. "Does Diversification Create Value in the Presence of External Financing Constraints? Evidence from the 2007–2009 Financial Crisis," Management Science, INFORMS, vol. 62(4), pages 905-923, April.
    9. Marcel Bogers & Ann-Kristin Zobel & Allan Afuah & Esteve Almirall & Sabine Brunswicker & Linus Dahlander & Lars Frederiksen & Annabelle Gawer & Marc Gruber & Stefan Haefliger & John Hagedoorn & Dennis, 2017. "The open innovation research landscape: established perspectives and emerging themes across different levels of analysis," Industry and Innovation, Taylor & Francis Journals, vol. 24(1), pages 8-40, January.
    10. Escribano, Alvaro & Fosfuri, Andrea & Tribó, Josep A., 2009. "Managing external knowledge flows: The moderating role of absorptive capacity," Research Policy, Elsevier, vol. 38(1), pages 96-105, February.
    11. Audretsch, David B. & Belitski, Maksim, 2020. "The role of R&D and knowledge spillovers in innovation and productivity," European Economic Review, Elsevier, vol. 123(C).
    12. Belderbos, Rene & Carree, Martin & Lokshin, Boris, 2004. "Cooperative R&D and firm performance," Research Policy, Elsevier, vol. 33(10), pages 1477-1492, December.
    13. Arora, Ashish & Athreye, Suma & Huang, Can, 2016. "The paradox of openness revisited: Collaborative innovation and patenting by UK innovators," Research Policy, Elsevier, vol. 45(7), pages 1352-1361.
    14. David B. Audretsch & Maksim Belitski, 2022. "A strategic alignment framework for the entrepreneurial university," Industry and Innovation, Taylor & Francis Journals, vol. 29(2), pages 285-309, February.
    15. Bruno Cassiman & Reinhilde Veugelers, 2002. "R&D Cooperation and Spillovers: Some Empirical Evidence from Belgium," American Economic Review, American Economic Association, vol. 92(4), pages 1169-1184, September.
    16. Rachel Griffith & Elena Huergo & Jacques Mairesse & Bettina Peters, 2006. "Innovation and Productivity Across Four European Countries," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(4), pages 483-498, Winter.
    17. Sjödin, David & Parida, Vinit & Palmié, Maximilian & Wincent, Joakim, 2021. "How AI capabilities enable business model innovation: Scaling AI through co-evolutionary processes and feedback loops," Journal of Business Research, Elsevier, vol. 134(C), pages 574-587.
    18. Bronwyn H. Hall & Francesca Lotti & Jacques Mairesse, 2013. "Evidence on the impact of R&D and ICT investments on innovation and productivity in Italian firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 22(3), pages 300-328, April.
    19. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    20. Susan M. Mudambi & Stephen Tallman, 2010. "Make, Buy or Ally? Theoretical Perspectives on Knowledge Process Outsourcing through Alliances," Journal of Management Studies, Wiley Blackwell, vol. 47(s2), pages 1434-1456, December.
    21. Richard R. Nelson, 1982. "The Role of Knowledge in R&D Efficiency," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(3), pages 453-470.
    22. John Hagedoorn, 1993. "Understanding the rationale of strategic technology partnering: Interorganizational modes of cooperation and sectoral differences," Strategic Management Journal, Wiley Blackwell, vol. 14(5), pages 371-385, July.
    23. Christoph Keding, 2021. "Understanding the interplay of artificial intelligence and strategic management: four decades of research in review," Management Review Quarterly, Springer, vol. 71(1), pages 91-134, February.
    24. S.A. Lippman & R.P. Rumelt, 1982. "Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 418-438, Autumn.
    25. Cristiano Antonelli & Alessandra Colombelli, 2017. "The locus of knowledge externalities and the cost of knowledge," Regional Studies, Taylor & Francis Journals, vol. 51(8), pages 1151-1164, August.
    26. Bronwyn Hall & Francesca Lotti & Jacques Mairesse, 2009. "Innovation and productivity in SMEs: empirical evidence for Italy," Small Business Economics, Springer, vol. 33(1), pages 13-33, June.
    27. Susan M. Mudambi & Stephen Tallman, 2010. "Make, Buy or Ally? Theoretical Perspectives on Knowledge Process Outsourcing through Alliances," Journal of Management Studies, Wiley Blackwell, vol. 47(8), pages 1434-1456, December.
    28. Sidney G. Winter, 2003. "Understanding dynamic capabilities," Strategic Management Journal, Wiley Blackwell, vol. 24(10), pages 991-995, October.
    29. Belderbos, Rene & Carree, Martin & Lokshin, Boris, 2004. "Cooperative R&D and firm performance," Research Policy, Elsevier, vol. 33(10), pages 1477-1492, December.
    30. Jeremy C. Stein & David S. Scharfstein, 2000. "Herd Behavior and Investment: Reply," American Economic Review, American Economic Association, vol. 90(3), pages 705-706, June.
    31. Reinhilde Veugelers & Cédric Schneider, 2018. "Which IP strategies do young highly innovative firms choose?," Small Business Economics, Springer, vol. 50(1), pages 113-129, January.
    32. Albert N. Link & John T. Scott, 2019. "The economic benefits of technology transfer from U.S. federal laboratories," The Journal of Technology Transfer, Springer, vol. 44(5), pages 1416-1426, October.
    33. Bruno Cassiman & Giovanni Valentini, 2016. "Open innovation: Are inbound and outbound knowledge flows really complementary?," Strategic Management Journal, Wiley Blackwell, vol. 37(6), pages 1034-1046, June.
    34. René Belderbos & Martin Carree & Boris Lokshin, 2006. "Complementarity in R&D Cooperation Strategies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(4), pages 401-426, June.
    35. David J. Teece, 2007. "Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance," Strategic Management Journal, Wiley Blackwell, vol. 28(13), pages 1319-1350, December.
    36. Kobarg, Sebastian & Stumpf-Wollersheim, Jutta & Welpe, Isabell M., 2019. "More is not always better: Effects of collaboration breadth and depth on radical and incremental innovation performance at the project level," Research Policy, Elsevier, vol. 48(1), pages 1-10.
    37. Detmar W. Straub & Richard T. Watson, 2001. "Research Commentary: Transformational Issues in Researching IS and Net-Enabled Organizations," Information Systems Research, INFORMS, vol. 12(4), pages 337-345, December.
    38. David G. Sirmon & Michael A. Hitt, 2009. "Contingencies within dynamic managerial capabilities: interdependent effects of resource investment and deployment on firm performance," Strategic Management Journal, Wiley Blackwell, vol. 30(13), pages 1375-1394, December.
    39. David Bruce Audretsch & Maksim Belitski & Rosa Caiazza, 2021. "Start-ups, Innovation and Knowledge Spillovers," The Journal of Technology Transfer, Springer, vol. 46(6), pages 1995-2016, December.
    40. Giovannetti, Emanuele & Piga, Claudio A., 2017. "The contrasting effects of active and passive cooperation on innovation and productivity: Evidence from British local innovation networks," International Journal of Production Economics, Elsevier, vol. 187(C), pages 102-112.
    41. Negassi, S., 2004. "R&D co-operation and innovation a microeconometric study on French firms," Research Policy, Elsevier, vol. 33(3), pages 365-384, April.
    42. Camacho, A., 1991. "Adaptation costs, coordination costs and optimal firm size," Journal of Economic Behavior & Organization, Elsevier, vol. 15(1), pages 137-149, January.
    43. Trocin, Cristina & Hovland, Ingrid Våge & Mikalef, Patrick & Dremel, Christian, 2021. "How Artificial Intelligence affords digital innovation: A cross-case analysis of Scandinavian companies," Technological Forecasting and Social Change, Elsevier, vol. 173(C).
    44. Miotti, Luis & Sachwald, Frederique, 2003. "Co-operative R&D: why and with whom?: An integrated framework of analysis," Research Policy, Elsevier, vol. 32(8), pages 1481-1499, September.
    45. Brian Wu & Zhixi Wan & Daniel A. Levinthal, 2014. "Complementary assets as pipes and prisms: Innovation incentives and trajectory choices," Strategic Management Journal, Wiley Blackwell, vol. 35(9), pages 1257-1278, September.
    46. Sharon Belenzon & Mark Schankerman, 2015. "Motivation and sorting of human capital in open innovation," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 795-820, June.
    47. Nelson, Richard R & Winter, Sidney G, 1982. "The Schumpeterian Tradeoff Revisited," American Economic Review, American Economic Association, vol. 72(1), pages 114-132, March.
    48. de Leeuw, Tim & Lokshin, Boris & Duysters, Geert, 2014. "Returns to alliance portfolio diversity: The relative effects of partner diversity on firm's innovative performance and productivity," Journal of Business Research, Elsevier, vol. 67(9), pages 1839-1849.
    49. Maksim Belitski & Rosa Caiazza & Yuliya Rodionova, 2020. "Investment in training and skills for innovation in entrepreneurial start-ups and incumbents: evidence from the United Kingdom," International Entrepreneurship and Management Journal, Springer, vol. 16(2), pages 617-640, June.
    50. James H. Love & Stephen Roper & Priit Vahter, 2014. "Learning from openness: The dynamics of breadth in external innovation linkages," Strategic Management Journal, Wiley Blackwell, vol. 35(11), pages 1703-1716, November.
    51. Rothaermel, Frank T. & Deeds, David L., 2006. "Alliance type, alliance experience and alliance management capability in high-technology ventures," Journal of Business Venturing, Elsevier, vol. 21(4), pages 429-460, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Colombelli, Alessandra & Belitski, Maksim & D’Amico, Elettra, 2023. "Artificial Intelligence and Firm Innovation: The Resource-Allocation Perspective," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 202304, University of Turin.
    2. D’Amico, Elettra & Belitski, Maksim & Colombelli, Alessandra, 2023. "Evaluating Internal and External Knowledge Sources in Adopting Artificial Intelligence," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202315, University of Turin.
    3. D’Amico, Elettra & Belitski, Maksim & Colombelli, Alessandra, 2023. "Evaluating Internal and External Knowledge Sources in Adopting Artificial Intelligence," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 202303, University of Turin.
    4. David B. Audretsch & Maksim Belitski & Rosa Caiazza & Erik E. Lehmann, 2020. "Knowledge management and entrepreneurship," International Entrepreneurship and Management Journal, Springer, vol. 16(2), pages 373-385, June.
    5. Audretsch, David B. & Belitski, Maksim, 2020. "The role of R&D and knowledge spillovers in innovation and productivity," European Economic Review, Elsevier, vol. 123(C).
    6. Audretsch, B. David & Belitski, Maksim, 2023. "The limits to open innovation and its impact on innovation performance," Technovation, Elsevier, vol. 119(C).
    7. Audretsch, David Bruce & Belitski, Maksim & Guerrero, Maribel, 2022. "The dynamic contribution of innovation ecosystems to schumpeterian firms: A multi-level analysis," Journal of Business Research, Elsevier, vol. 144(C), pages 975-986.
    8. Greco, Marco & Grimaldi, Michele & Locatelli, Giorgio & Serafini, Mattia, 2021. "How does open innovation enhance productivity? An exploration in the construction ecosystem," Technological Forecasting and Social Change, Elsevier, vol. 168(C).
    9. Bernal, Pilar & Carree, Martin & Lokshin, Boris, 2022. "Knowledge spillovers, R&D partnerships and innovation performance," Technovation, Elsevier, vol. 115(C).
    10. Segarra-Blasco, Agusti­ & Arauzo-Carod, Josep-Maria, 2008. "Sources of innovation and industry-university interaction: Evidence from Spanish firms," Research Policy, Elsevier, vol. 37(8), pages 1283-1295, September.
    11. Francesco Aiello & Paola Cardamone & Lidia Mannarino & Valeria Pupo, 2021. "Does external R&D matter for family firm innovation? Evidence from the Italian manufacturing industry," Small Business Economics, Springer, vol. 57(4), pages 1915-1930, December.
    12. Sánchez-González, Gloria & González-Álvarez, Nuria & Nieto, Mariano, 2009. "Sticky information and heterogeneous needs as determining factors of R&D cooperation with customers," Research Policy, Elsevier, vol. 38(10), pages 1590-1603, December.
    13. Gimenez-Fernandez, Elena M. & Sandulli, Francesco D. & Bogers, Marcel, 2020. "Unpacking liabilities of newness and smallness in innovative start-ups: Investigating the differences in innovation performance between new and older small firms," Research Policy, Elsevier, vol. 49(10).
    14. Angelidou, Sofia & Mount, Matthew & Pandza, Krsto, 2022. "Exploring the asymmetric complementarity between external knowledge search and management innovation," Technovation, Elsevier, vol. 115(C).
    15. Mairesse, Jacques & Mohnen, Pierre, 2010. "Using Innovation Surveys for Econometric Analysis," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1129-1155, Elsevier.
    16. Garcia Martinez, Marian & Zouaghi, Ferdaous & Sanchez Garcia, Mercedes, 2017. "Capturing value from alliance portfolio diversity: The mediating role of R&D human capital in high and low tech industries," Technovation, Elsevier, vol. 59(C), pages 55-67.
    17. Emanuele Giovannetti & Claudio Piga, 2023. "The multifaceted nature of cooperation for innovation, ICT and innovative outcomes: evidence from UK Microdata," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 639-666, September.
    18. Erika Raquel Badillo & Rosina Moreno, 2018. "Does absorptive capacity determine collaboration returns to innovation? A geographical dimension," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(3), pages 473-499, May.
    19. Scandura, Alessandra & Bolzani, Daniela, 2020. "The Role of Collaboration Networks for Innovation in Immigrant-Owned New Technology-Based Firms," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 202004, University of Turin.
    20. Martinez-Noya, Andrea & Narula, Rajneesh, 2018. "What more can we learn from R&D alliances? : A review and research agenda," MERIT Working Papers 2018-022, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uto:dipeco:202316. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Piero Cavaleri or Marina Grazioli (email available below). General contact details of provider: https://edirc.repec.org/data/detorit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.