IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The risks of innovation : are innovating firms less likely to die ?

Listed author(s):
  • Fernandes, Ana M.
  • Paunov, Caroline

While innovation is a source of competitiveness, it may expose plants to survival risks. Using a rich set of plant-product data for Chilean manufacturing plants during the period 1996-2006 and discrete-time hazard models controlling for unobserved plant heterogeneity, this paper shows that innovating plants have higher survival odds. However, risk plays an important role for the innovation-survival link: only innovators that retain diversified sources of revenues survive longer. Single-product innovators are at greater risk of exiting. In addition, only innovators facing lower market risk, measured by fewer innovative competitors, low-pricing strategies, or lower sales volatility in the new products'markets, see their odds of survival increase significantly. Technical risk, measured by the proximity of product innovations to the plants'past expertise, the degree of sophistication of new products, or their novelty to the Chilean market, does not play a substantial role in the innovation-survival link. Engaging in risky innovation is not an irrational decision, since plants reap big payoffs -- higher productivity, employment and sales growth -- from such innovations. However, those payoffs are not always higher than those from cautious innovation, suggesting that constraining factors, such as credit constraints, force plants to take on more risk when innovating. An implication of the findings for industry dynamics is that among innovators, only the survival of cautious innovators is guaranteed. Since engaging in cautious innovation may not be feasible for all plants, there could be a role for policy in reducing innovators'exposure to risks and providing assistance to deal with failed innovations, while setting the right incentives.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/06/20/000158349_20120620093755/Rendered/PDF/WPS6103.pdf
Download Restriction: no

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6103.

as
in new window

Length:
Date of creation: 01 Jun 2012
Handle: RePEc:wbk:wbrwps:6103
Contact details of provider: Postal:
1818 H Street, N.W., Washington, DC 20433

Phone: (202) 477-1234
Web page: http://www.worldbank.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Silviano Esteve-Pérez & Francisco Requena-Silvente & Vicente J. Pallardó-Lopez, 2013. "The Duration Of Firm-Destination Export Relationships: Evidence From Spain, 1997–2006," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 159-180, 01.
  2. Pierre Mohnen & Jacques Mairesse & Marcel Dagenais, 2006. "Innovativity: A comparison across seven European countries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 391-413.
  3. Wolfgang Hess & Maria Persson, 2011. "Exploring the duration of EU imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(4), pages 665-692, November.
  4. Maurice Kugler & John Haltiwanger & Adriana Kugler & Marcela Eslava, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," 2009 Meeting Papers 615, Society for Economic Dynamics.
  5. J. Heckman & B. Singer, 1984. "The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 231-241.
  6. Roger Bandick & Holger Görg, 2010. "Foreign acquisition, plant survival, and employment growth," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 547-573, May.
  7. Roberto à lvarez & Sebastián Vergara, 2010. "Exit in Developing Countries: Economic Reforms and Plant Heterogeneity," Economic Development and Cultural Change, University of Chicago Press, vol. 58(3), pages 537-561, 04.
  8. Harald Strotmann, 2007. "Entrepreneurial Survival," Small Business Economics, Springer, vol. 28(1), pages 87-104, January.
  9. Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.
  10. Paunov, Caroline, 2012. "The global crisis and firms’ investments in innovation," Research Policy, Elsevier, vol. 41(1), pages 24-35.
  11. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Entry, Exit and Establishment Survival in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 51(1), pages 91-112, 03.
  12. Jarreau, Joachim & Poncet, Sandra, 2012. "Export sophistication and economic growth: Evidence from China," Journal of Development Economics, Elsevier, vol. 97(2), pages 281-292.
  13. Paul Brenton & Christian Saborowski & Erik von Uexkull, 2010. "What Explains the Low Survival Rate of Developing Country Export Flows?," World Bank Economic Review, World Bank Group, vol. 24(3), pages 474-499, December.
  14. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, vol. 87(1), pages 106-118, August.
  15. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
  16. Miguel Manjón-Antolín & Josep-Maria Arauzo-Carod, 2008. "Firm survival: methods and evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(1), pages 1-24, March.
  17. Shiferaw, Admasu, 2009. "Survival of Private Sector Manufacturing Establishments in Africa: The Role of Productivity and Ownership," World Development, Elsevier, vol. 37(3), pages 572-584, March.
  18. Crespi, Gustavo & Zuniga, Pluvia, 2012. "Innovation and Productivity: Evidence from Six Latin American Countries," World Development, Elsevier, vol. 40(2), pages 273-290.
  19. Coad, Alex & Rao, Rekha, 2008. "Innovation and firm growth in high-tech sectors: A quantile regression approach," Research Policy, Elsevier, vol. 37(4), pages 633-648, May.
  20. Ron Boschma & Asier Minondo & Mikel Navarro, 2012. "Related variety and regional growth in Spain," Papers in Regional Science, Wiley Blackwell, vol. 91(2), pages 241-256, 06.
  21. Fernandes, Ana M. & Paunov, Caroline, 2009. "Does tougher import competition foster product quality upgrading ?," Policy Research Working Paper Series 4894, The World Bank.
  22. Kjell G. Salvanes & Ragnar Tveteras, 2004. "Plant Exit, Vintage Capital and the Business Cycle," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 255-276, 06.
  23. Fernandes, Ana M. & Paunov, Caroline, 2012. "Foreign direct investment in services and manufacturing productivity: Evidence for Chile," Journal of Development Economics, Elsevier, vol. 97(2), pages 305-321.
  24. McCall, Brian P, 1994. "Testing the Proportional Hazards Assumption in the Presence of Unmeasured Heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 321-334, July-Sept.
  25. Lucas Navarro, 2012. "Plant level evidence on product mix changes in Chilean manufacturing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 165-195, February.
  26. Wolfgang Hess & Maria Persson, 2012. "The duration of trade revisited," Empirical Economics, Springer, vol. 43(3), pages 1083-1107, December.
  27. repec:crs:wpaper:9833 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6103. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.