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Profit differentials and innovation

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  • Elena Cefis
  • Matteo Ciccarelli

Abstract

The article aims to investigate empirically the effects of innovative activities on corporate profitability, using a panel of 267 UK manufacturing firms, over the period 1988-1992. Using the Bayesian approach to, explicitly, consider heterogeneity among firms, we find: (i) a positive and well-determined effect of innovation on profits that smoothly decreases as time passes by; (ii) a difference in profitability between innovators and non-innovators, greater when the comparison is between persistent innovators and non-innovators; and (iii) a long-run persistence in profit differentials.

Suggested Citation

  • Elena Cefis & Matteo Ciccarelli, 2005. "Profit differentials and innovation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(1-2), pages 43-61.
  • Handle: RePEc:taf:ecinnt:v:14:y:2005:i:1-2:p:43-61
    DOI: 10.1080/1043859042000232160
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    References listed on IDEAS

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    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    2. Geroski, P. A. & Van Reenen, J. & Walters, C. F., 1997. "How persistently do firms innovate?," Research Policy, Elsevier, vol. 26(1), pages 33-48, March.
    3. Canova, Fabio & Marcet, Albert, 1995. "The Poor Stay Poor: Non-Convergence Across Countries and Regions," CEPR Discussion Papers 1265, C.E.P.R. Discussion Papers.
    4. Hsiao, C. & Pesaran, M. H. & Tahmiscioglu, A. K., 1998. "Bayes Estimation of Short-run Coefficients in Dynamic Panel Data Models," Cambridge Working Papers in Economics 9804, Faculty of Economics, University of Cambridge.
    5. Malerba, Franco & Orsenigo, Luigi, 1995. "Schumpeterian Patterns of Innovation," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 47-65, February.
    6. Acs, Zoltan J & Audretsch, David B, 1989. "Patents as a Measure of Innovative Activity," Kyklos, Wiley Blackwell, vol. 42(2), pages 171-180.
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