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Externalities of openness in innovation

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  • Roper, Stephen
  • Vahter, Priit
  • Love, James H.

Abstract

Discussion of open innovation has typically stressed the benefits to the individual enterprise from boundary-spanning linkages and improved internal knowledge sharing. In this paper we explore the potential for wider benefits from openness in innovation and argue that openness may itself generate positive externalities by enabling improved knowledge diffusion. The potential for these (positive) externalities suggests a divergence between the private and social returns to openness and the potential for a sub-optimal level of openness where this is determined purely by firms’ private returns. Our analysis is based on Irish plant-level panel data from manufacturing industry over the period 1994–2008. Based on instrumental variables regression models our results suggest that externalities of openness in innovation are significant and that they are positively associated with firms’ innovation performance. We find that these externality effects are unlikely to work through their effect on the spread of open innovation practices. Instead, they appear to positively influence innovation outputs by either increasing knowledge diffusion or strengthening competition. Our evidence on the significance of externalities from openness in innovation provides a rationale for public policy aimed at promoting open innovation practices among firms.

Suggested Citation

  • Roper, Stephen & Vahter, Priit & Love, James H., 2013. "Externalities of openness in innovation," Research Policy, Elsevier, vol. 42(9), pages 1544-1554.
    • Handle: RePEc:eee:respol:v:42:y:2013:i:9:p:1544-1554
    DOI: 10.1016/j.respol.2013.05.006
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    Cited by:

    1. Felin, Teppo & Zenger, Todd R., 2014. "Closed or open innovation? Problem solving and the governance choice," Research Policy, Elsevier, vol. 43(5), pages 914-925.
    2. Roper, Stephen & Love, James H. & Bonner, Karen, 2017. "Firms’ knowledge search and local knowledge externalities in innovation performance," Research Policy, Elsevier, vol. 46(1), pages 43-56.
    3. Love, James H. & Roper, Stephen & Vahter, Priit, 2014. "Dynamic complementarities in innovation strategies," Research Policy, Elsevier, vol. 43(10), pages 1774-1784.
    4. Frank, Alejandro Germán & Cortimiglia, Marcelo Nogueira & Ribeiro, José Luis Duarte & Oliveira, Lindomar Subtil de, 2016. "The effect of innovation activities on innovation outputs in the Brazilian industry: Market-orientation vs. technology-acquisition strategies," Research Policy, Elsevier, vol. 45(3), pages 577-592.
    5. Teppo Felin & Todd R. Zenger, 2016. "CROSSROADS—Strategy, Problems, and a Theory for the Firm," Organization Science, INFORMS, vol. 27(1), pages 222-231, February.
    6. repec:spr:scient:v:111:y:2017:i:2:d:10.1007_s11192-017-2320-3 is not listed on IDEAS
    7. Greco, Marco & Grimaldi, Michele & Cricelli, Livio, 2017. "Hitting the nail on the head: Exploring the relationship between public subsidies and open innovation efficiency," Technological Forecasting and Social Change, Elsevier, vol. 118(C), pages 213-225.
    8. repec:eee:tefoso:v:132:y:2018:i:c:p:308-317 is not listed on IDEAS

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