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

Pellegrino, Gabriele and Savona, Maria (2013). Is money all? Financing versus knowledge and demand constraints to innovation. UNU-MERIT.

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  • Author Pellegrino, Gabriele
    Savona, Maria
    Title Is money all? Financing versus knowledge and demand constraints to innovation
    Publication Date 2013
    Publisher UNU-MERIT
    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.
    Keyword Barriers to innovation
    Innovative firms
    Potential innovators
    Failed innovators
    Panel data
    JEL C23
    O31
    032
    033
    Copyright Holder UNU-MERIT
    Copyright Year 2013
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    Created: Wed, 11 Dec 2013, 17:15:10 JST