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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.

Suggested Citation

  • Francesco Bogliacino & Mario Pianta, 2013. "Profits, R&D, and innovation--a model and a test," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(3), pages 649-678, June.
    • Handle: RePEc:oup:indcch:v:22:y:2013:i:3:p:649-678
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    File URL: http://hdl.handle.net/10.1093/icc/dts028
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    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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