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Out of Equilibrium Profit and Innovation

  • Cristiano Antonelli
  • Giuseppe Scellato

Innovation is the result of intentional decision-making that takes place in out-of-equilibrium conditions. The farther is profitability from the average and the deeper the out-of-equilibrium conditions. The farther away is the firm from equilibrium and the stronger the likelihood for innovation to take place. The hypothesis of a U-relationship between levels of profitability and innovative activity, as measured by the rates of increase of total factor productivity, is articulated and tested. The evidence of a large sample of 7000 Italian firms in the years 1996-2005 confirms that a strong causal relation holds between the quadratic specification of profitability and the growth rates of total factor productivity. The results are robust to different approaches to evaluate productivity growth rates.

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Date of creation: 15 Jan 2009
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Handle: RePEc:cla:levarc:814577000000000071
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  19. repec:fth:wobaco:1083 is not listed on IDEAS
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