Innovation in a Context of Declining Returns to R&D: A Critical Review of Novel Theoretical Developments

Innovation theory has arguably driven the innovations that have contributed to human development over time. According to discussions related to the ‘Fourth Industrial Revolution,' interactions of novel technologies herald an age of unequalled productivity and human progress. Evidence however suggests that returns to innovation (narrowly defined here as investments in R&D), are in fact continuing to decline. Given this paradox, the objective of this conceptual paper is to present an argument drawn from theory that it is only a matter of time until declining returns to innovation reverse themselves and a new form of R&D problem solving becomes more widely utilised. If the propositions offered here are borne out by future research, then an important reconceptualization of the nature of the innovation process might be useful, one that questions Cohen and Levinthal's notion of absorptive capacity and path dependency as the primary mode of innovation problem solving.