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Is money all? Financing versus knowledge and demand constraints to innovation

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  • Pellegrino, Gabriele

    (University of Barcelona, and Università Cattolica del Sacro Cuore, Piacenza and Milano)

  • Savona, Maria

    (SPRU, University of Sussex,)

Abstract

The paper adds to the scattered empirical evidence on the role of obstacles to innovation in a three-fold way. First, we correct for the usual sample selection bias by filtering out firms not interested in innovation from 'potential innovators'. We then analyse the impact of obstacles on the translation of firms' engagement in innovative activities onto actual innovative outputs. Second, we assess what mostly affects firms' rate of failure in this process, whether finance or, rather, knowledge or demand-related constraints. Third, we do so in a panel framework, which allows to account for endogeneity and firms' unobserved heterogeneity through individual effects. We find that demand- and market-related factors are as important as financing conditions in determining firms' innovation failures. This evidence puts much of the latest hype on finance in perspective and brings back into the picture traditional demand and market structure arguments of why firms fail to innovate. The empirical analysis is based on an unbalanced panel of firm data from four waves of the UK Community Innovation Survey (CIS) between 2002 and 2010 merged with the UK Business Structure Database.

Suggested Citation

  • Pellegrino, Gabriele & Savona, Maria, 2013. "Is money all? Financing versus knowledge and demand constraints to innovation," MERIT Working Papers 2013-029, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2013029
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    References listed on IDEAS

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    Cited by:

    1. Marin,Giovanni & Marzucchi,Alberto & Zoboli,Roberto, 2014. "SMEs and Barriers to Eco-Innovation in EU: A Diverse Palette of Greens," INGENIO (CSIC-UPV) Working Paper Series 201404, INGENIO (CSIC-UPV).
    2. Costa-Campi, M.T. & Duch-Brown, N. & García-Quevedo, J., 2014. "R&D drivers and obstacles to innovation in the energy industry," Energy Economics, Elsevier, vol. 46(C), pages 20-30.
    3. José García-Quevedo & Gabriele Pellegrino & Maria Savona, 2017. "Reviving demand-pull perspectives: The effect of demand uncertainty and stagnancy on R&D strategy," Cambridge Journal of Economics, Oxford University Press, vol. 41(4), pages 1087-1122.
    4. Trabelsi Ramzi & Akri Ben Salah, 2018. "The Determinants of Innovation Capacity in the Less Innovative Countries in the Euro-Mediterranean Region," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(2), pages 526-543, June.
    5. Angela Rocio Vasquez-Urriago & Andrés Barge-Gil & Aurelia Modrego Rico, 2016. "Which firms benefit more from being located in a Science and Technology Park? Empirical evidence for Spain," Research Evaluation, Oxford University Press, vol. 25(1), pages 107-117.
    6. Massimiliano Volpi, 2014. "Universities as sources of information: comparing the role of 'open innovation' and companies' motivations," SEEDS Working Papers 0514, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Mar 2014.
    7. Levan Bzhalava & Uwe Cantner, 2018. "The journey towards open innovation: why do firms choose different routes?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(3), pages 245-265, September.
    8. Gabriele Pellegrino, 2015. "Barriers to innovation: can firm age help lower them?," Working Papers 2015/3, Institut d'Economia de Barcelona (IEB).
    9. Massimiliano Volpi, 2017. "Sources of information for innovation: the role of companies’ motivations," Industry and Innovation, Taylor & Francis Journals, vol. 24(8), pages 817-836, November.
    10. Enrique Loredo & Nuria Lopez-Mielgo & Gustavo Pineiro-Villaverde & María Teresa García-Álvarez, 2019. "Utilities: Innovation and Sustainability," Sustainability, MDPI, Open Access Journal, vol. 11(4), pages 1-13, February.
    11. Francesco Crespi & Serenella Caravella, 2020. "The Role Of Public Procurement As Innovation Lever: Evidence From Italian Manufacturing Firms," Departmental Working Papers of Economics - University 'Roma Tre' 0252, Department of Economics - University Roma Tre.
    12. Pinget, Amandine, 2016. "Spécificités des déterminants des innovations environnementales : une approche appliquée aux PME [Specificities of determinants for environmental innovation : an approach applied to SMEs]," MPRA Paper 80108, University Library of Munich, Germany.
    13. Mirza Abdullah & Suhaiza Zailani & Mohammad Iranmanesh & K. Jayaraman, 2016. "Barriers to green innovation initiatives among manufacturers: the Malaysian case," Review of Managerial Science, Springer, vol. 10(4), pages 683-709, October.

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    More about this item

    Keywords

    Barriers to innovation; Innovative firms; Potential Innovators; Failed Innovators; Panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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