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Profits, R&D, and innovation--a model and a test

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  • Francesco Bogliacino
  • Mario Pianta

Abstract

In this article, we propose an integrated view of the mechanisms supporting the Schumpeterian "engine of progress." We investigate--at the industry level--the interconnections between three key relationships shaping the dynamics of innovation and economic performance: first, the ability of industries' R&D efforts to turn out successful innovations; second, the ability of innovations to lead to high entrepreneurial profits; and third, the commitment of industries to invest profits in further technological efforts. We build a simultaneous three-equation model exploring the determinants of industries' R&D intensities, innovative turnover, and profit growth, highlighting the complexity of relationships, reciprocal influences, and feedback loops. The model is empirically tested at the industry level--for 38 manufacturing and service sectors--on 8 European countries for two periods from 1994 to 2006. The results show that the model effectively accounts for the dynamics of R&D, innovation, and profits of European industries. Copyright 2013 The Author 2012. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

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  • Francesco Bogliacino & Mario Pianta, 2013. "Profits, R&D, and innovation--a model and a test," Industrial and Corporate Change, Oxford University Press, vol. 22(3), pages 649-678, June.
  • Handle: RePEc:oup:indcch:v:22:y:2013:i:3:p:649-678
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    References listed on IDEAS

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    1. Wakelin, Katharine, 2001. "Productivity growth and R&D expenditure in UK manufacturing firms," Research Policy, Elsevier, vol. 30(7), pages 1079-1090, August.
    2. Evangelista, Rinaldo & Savona, Maria, 2003. "Innovation, employment and skills in services. Firm and sectoral evidence," Structural Change and Economic Dynamics, Elsevier, vol. 14(4), pages 449-474, December.
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    Cited by:

    1. Heredia Pérez, Jorge A. & Geldes, Cristian & Kunc, Martin H. & Flores, Alejandro, 2019. "New approach to the innovation process in emerging economies: The manufacturing sector case in Chile and Peru," Technovation, Elsevier, vol. 79(C), pages 35-55.
    2. Francesco Bogliacino & Mario Pianta, 2016. "The Pavitt Taxonomy, revisited: patterns of innovation in manufacturing and services," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 153-180, August.
    3. Francesco Bogliacino & Dario Guarascio & Valeria Cirillo, 2015. "Where Does the Surplus Go? Disentangling the Capital-Labor Distributive Conflict," Documentos de Trabajo - Escuela de Economía 013535, Universidad Nacional de Colombia -FCE - CID.
    4. Giorgio Calcagnini & Germana Giombini & Giuseppe Travaglini, 2021. "The Productivity Gap Among Major European Countries, USA and Japan," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(1), pages 59-78, March.
    5. Dario Guarascio & Mario Pianta & Francesco Bogliacino, 2017. "Export, R&D and New Products: A Model and a Test on European Industries," Economic Complexity and Evolution, in: Andreas Pyka & Uwe Cantner (ed.), Foundations of Economic Change, pages 393-432, Springer.
    6. Francesco Bogliacino & Dario Guarascio & Valeria Cirillo, 2018. "The dynamics of profits and wages: technology, offshoring and demand," Industry and Innovation, Taylor & Francis Journals, vol. 25(8), pages 778-808, September.
    7. Matteo Lucchese & Mario Pianta, 2012. "Innovation and Employment in Economic Cycles," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(2), pages 341-359, June.
    8. Matteo Deleidi & Claudia Fontanari & Santiago J. Gahn, 2022. "Autonomous Demand and Technical Change: Exploring the Kaldor-Verdoorn Law on a Global Level," Working Papers PKWP2212, Post Keynesian Economics Society (PKES).
    9. Dario Guarascio & Mario Pianta & Matteo Lucchese & Francesco Bogliacino, 2015. "Business cycles, technology and exports," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(2), pages 167-200, August.
    10. Cristiano Antonelli & Claudio Fassio, 2016. "Globalization and the Knowledge-Driven Economy," Economic Development Quarterly, , vol. 30(1), pages 3-14, February.
    11. Alessandro Bramucci, 2015. "Offshoring, Employment and Wages Abstract: This paper reviews the debate on the economic effect of the international fragmentation of production also known as ?offshoring? and provides a preliminary i," Working Papers 1506, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2015.
    12. Haji Ali Beigi, Maryam, 2021. "External knowledge diversity, competition intensity and innovation performance in logistics: Implications for less versus more innovative industries," Ilmenau Economics Discussion Papers 157, Ilmenau University of Technology, Institute of Economics.
    13. Teixeira, Aurora A.C. & Queirós, Anabela S.S., 2016. "Economic growth, human capital and structural change: A dynamic panel data analysis," Research Policy, Elsevier, vol. 45(8), pages 1636-1648.
    14. Nascia, Leopoldo & Pianta, Mario, 2018. "Research and innovation policy in Italy," MPRA Paper 89510, University Library of Munich, Germany.
    15. 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.
    16. Daniele Pianeselli, 2019. "Upwind sailors. Financial profile of innovative Italian firms during the double-dip recession," Questioni di Economia e Finanza (Occasional Papers) 515, Bank of Italy, Economic Research and International Relations Area.
    17. Emanuele Brancati & Raffaele Brancati & Dario Guarascio & Andrea Maresca & Manuel Romagnoli & Antonello Zanfei, 2018. "Firm-level Drivers of Export Performance and External Competitiveness in Italy," European Economy - Discussion Papers 2015 - 087, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    18. Pianta, Mario & Reljic, Jelena, 2021. "Employment quality, economic performance and wages in Europe. Exploring the virtuous circle," MPRA Paper 109797, University Library of Munich, Germany.
    19. Andrea Coveri & Mario Pianta, 2019. "The Structural Dynamics of Income Distribution:Technology, Wages and Profits," Working Papers 1901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    20. Boukhatem, Jamel & Djelassi, Mouldi, 2020. "Liquidity risk in the Saudi banking system: Is there any Islamic banking specificity?," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 206-219.
    21. Bramucci, Alessandro, 2016. "Offshoring, employment and wages," IPE Working Papers 71/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    22. Bogliacino, Francesco & Cardona, Sebastian Gómez, 2014. "Capabilities and investment in R&D: An analysis on European data," Structural Change and Economic Dynamics, Elsevier, vol. 31(C), pages 101-111.

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    More about this item

    JEL classification:

    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L8 - Industrial Organization - - Industry Studies: Services
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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