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Out of Equilibrium Profit and Innovation

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  • Cristiano Antonelli
  • Giuseppe Scellato

Abstract

Innovation is the result of intentional decision-making that takes place in out-of-equilibrium conditions. Profitability is a reliable indicator of equilibrium conditions, far better than competition, as it integrates the effects of out-of-equilibrium conditions in both product and factor markets. The farther the profitability from the average, the deeper the out-of-equilibrium conditions. The farther away the firm from equilibrium, the stronger the likelihood for innovation to take place. The hypothesis of a U-shaped relationship between levels of profitability and innovative activity, as measured by the rates of increase in total factor productivity (TFP), is articulated and tested. The evidence from a large sample of 7000 Italian manufacturing firms in the years 1996-2005 confirms the presence of a quadratic, convex relationship between profitability and the growth rates of TFP.
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  • Cristiano Antonelli & Giuseppe Scellato, 2009. "Out of Equilibrium Profit and Innovation," Levine's Working Paper Archive 814577000000000071, David K. Levine.
  • Handle: RePEc:cla:levarc:814577000000000071
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    1. C. Antonelli, 2007. "Localized Technological Change," Chapters,in: Elgar Companion to Neo-Schumpeterian Economics, chapter 16 Edward Elgar Publishing.
    2. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
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    5. Antonelli, Cristiano, 2007. "The system dynamics of collective knowledge: From gradualism and saltationism to punctuated change," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 215-236, February.
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    8. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    9. Antonelli, Cristiano, 1989. "A failure-inducement model of research and development expenditure : Italian evidence from the early 1980s," Journal of Economic Behavior & Organization, Elsevier, vol. 12(2), pages 159-180, October.
    10. Schumpeter, Joseph A., 1947. "The Creative Response in Economic History," The Journal of Economic History, Cambridge University Press, vol. 7(02), pages 149-159, November.
    11. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    12. F. M. Scherer, 1967. "Research and Development Resource Allocation Under Rivalry," The Quarterly Journal of Economics, Oxford University Press, vol. 81(3), pages 359-394.
    13. Antonelli, Cristiano, 1986. "The international diffusion of new information technologies," Research Policy, Elsevier, vol. 15(3), pages 139-147, June.
    14. Giuseppe Scellato, 2007. "Patents, firm size and financial constraints: an empirical analysis for a panel of Italian manufacturing firms," Cambridge Journal of Economics, Oxford University Press, vol. 31(1), pages 55-76, January.
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    Cited by:

    1. Cristiano Antonelli & Francesco Crespi & Giuseppe Scellato, 2013. "Internal and external factors in innovation persistence," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 22(3), pages 256-280, April.
    2. Cristiano Antonelli, 2011. "The Economic Complexity of Technological Change: Knowledge Interaction and Path Dependence," Chapters,in: Handbook on the Economic Complexity of Technological Change, chapter 1 Edward Elgar Publishing.
    3. Antonelli Cristiano & Ferraris Gianluigi, 2012. "Endogenous knowledge externalities: an agent based simulation model where schumpeter meets Marshall," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201202, University of Turin.
    4. Agnieszka Gehringer, 2011. "Pecuniary knowledge externalities and innovation: intersectoral linkages and their effects beyond technological spillovers," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(5), pages 495-515.
    5. Cristiano Antonelli & Francesco Crespi & Giuseppe Scellato, 2015. "Productivity growth persistence: firm strategies, size and system properties," Small Business Economics, Springer, vol. 45(1), pages 129-147, June.
    6. Cristiano Antonelli & Gianluigi Ferraris, 2011. "Innovation as an Emerging System Property: An Agent Based Simulation Model," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 14(2), pages 1-1.
    7. repec:got:cegedp:100 is not listed on IDEAS
    8. repec:eee:respol:v:46:y:2017:i:8:p:1437-1453 is not listed on IDEAS
    9. Antonelli Cristiano & Crespi, Francesco & Scellato, Giuseppe, 2013. "Path Dependent Patterns of Persistence in Productivity Growth," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201310, University of Turin.
    10. Alex Coad & Nanditha Mathew & Emanuele Pugliese, 2017. "What's good for the goose ain't good for the gander: cock-eyed counterfactuals and the performance effects of R&D," LEM Papers Series 2017/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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