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Out of Equilibrium Profit and Innovation

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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File URL: http://www.unito.it/unitoWAR/ShowBinary/FSRepo/D031/Allegati/WP2008Dip_L&B/4_WP_Momigliano.pdf
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Paper provided by University of Turin in its series 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 Carlo Alberto. WP series with number 200804.

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Length: 35 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:uto:labeco:200804
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