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The Role of Demand in Fostering Product vs Process Innovation: A Model and an Empirical Test

Listed author(s):
  • Dawid, Herbert

    ()

    (University of Bielefeld)

  • Pellegrino, Gabriele

    ()

    (EPFL, Lausanne)

  • Vivarelli, Marco

    ()

    (Università Cattolica del Sacro Cuore)

While the extant innovation literature has provided extensive evidence of the so-called "demand-pull" effect, the possible diverse impact of demand evolution on product vs process innovation activities has not been yet investigated. This paper develops a formal model predicting a larger inducing impact of past sales in fostering product rather than process innovation. This prediction is then tested through a dynamic microeconometric model, controlling for R&D persistence, sample selection, observed and unobservable individual firm effects and time and sectoral peculiarities. Results are consistent with the model and suggest that an expansionary economic policy may benefit the diffusion of new products or even the emergence of entire new sectors.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10846.

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Length: 25 pages
Date of creation: Jun 2017
Handle: RePEc:iza:izadps:dp10846
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  1. Roberto Fontana & Marco Guerzoni, 2008. "Incentives and uncertainty: an empirical analysis of the impact of demand on innovation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 927-946, November.
  2. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  3. Crlstlano Antonelli, 1998. "The Dynamics Of Localized Technological Changes. The Interaction Between Factor Costs Inducement, Demand Pull And Schumpeterian Rivalry," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 6(2-3), pages 97-120.
  4. Brouwer, Erik & Kleinknecht, Alfred, 1996. "Firm Size, Small Business Presence and Sales of Innovative Products: A Micro-econometric Analysis," Small Business Economics, Springer, vol. 8(3), pages 189-201, June.
  5. Mariacristina Piva & Marco Vivarelli, 2007. "Is demand-pulled innovation equally important in different groups of firms?," Cambridge Journal of Economics, Oxford University Press, vol. 31(5), pages 691-710, September.
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