Evidence on the impact of R&D and ICT investments on innovation and productivity in Italian firms

Both research and development (R&D) and information and communication technology (ICT) investment have been identified as sources of relative innovation underperformance in Europe vis-à-vis the USA. In this article, we investigate the R&D and ICT investment at the firm level in an effort to assess their relative importance and to what extent they are complements or substitutes. We use data on a large unbalanced panel data sample of Italian manufacturing firms constructed from four consecutive waves of a survey of manufacturing firms, to estimate a version of the CDM model of R&D, innovation, and productivity [Crépon–Duguet–Mairesse 1998. Research, innovation and productivity: An econometric analysis at the firm level. Economics of Innovation and New Technology 7, no. 2: 115–58] that has been modified to include ICT investment and R&D as the two main inputs into innovation and productivity. We find that R&D and ICT are both strongly associated with innovation and productivity, with R&D being more important for innovation, and ICT investment being more important for productivity. For the median firm, rates of return to both investments are so high that they suggest considerably underinvestment in both these activities. We explore the possible complementarity between R&D and ICT in innovation and production, but find none, although we do find complementarity between R&D and worker skill in innovation.     

The internationalization of firms in the service industries: Channels, determinants and sectoral patterns

The paper presents the results of a new survey on the international activities of Norwegian enterprises in the service industries. The survey focuses on three main internationalization channels: international sales, international cooperation and R&D outsourcing. The empirical analysis studies the relevance of these channels, and investigates the related strategies, objectives and determinants. International sales and collaborations emerge as the two most relevant channels, whereas the scope for R&D outsourcing seems to be far more limited. The analysis of the determinants of international activities leads to three main results: (1) the innovative capability of firms matters for their international performance; (2) the various internationalization channels seem to be complement, rather than substitute, strategies to compete in foreign markets; and (3) sectoral specificities greatly affect firms' internationalization strategies and performance.     

Young firms and innovation: A microeconometric analysis

This paper discusses the sources of product innovation in young innovative companies (YICs), here defined as firms engaged in product innovation and with less than 8 years of activity. In particular, we look at in-house and external R&D and at the acquisition of external technology in its embodied and disembodied components. These input–output relationships are tested on a sample of 2713 innovative Italian firms. A sample-selection approach is applied to study both the determinants of product innovation and the factors affecting the intensity of innovation.Results show that in-house R&D is linked to the propensity to introduce product innovation both in mature firms and YICs; however, innovation intensity in the YICs is mainly dependent on embodied technical change from external sources, while in-house R&D does not play a significant role.     

Firm size and types of innovation

We propose a general theory of innovation that illustrates the relative benefits of performing process versus product R&D when firm size is endogenous. A firm's size, scope, and R&D portfolio are shown to reflect the same underlying characteristic of the firm, namely manufacturing efficiency. We demonstrate that efficient firms become larger, have greater scope, and perform more of both process and product R&D. In light of decreasing returns to R&D, this implies small firms obtain more product innovations per dollar of R&D than large firms, which is consistent with evidence we present that small firms are more innovative than large firms as they obtain more patent counts and citations per dollar of R&D.     

Open innovation and intellectual property strategy: the catch-up processes of two Chinese pharmaceutical firms

We explore the interaction of open innovation and intellectual property (IP) in two Chinese latecomer pharmaceutical firms in their catch-up process. Studying archival data, documentation, and interviews, we found that the two firms exhibited five periods that were characterised by different open innovation activities and R&D capabilities. In their early stages, the two firms lacked R&D functions; thus, they imported technologies and pursued production-oriented strategies. As they gradually entered into collaborations and established their R&D departments, open innovation and IP protection played important and dynamic roles in this process. Thus, a catch-up process involves not only acquiring technological capabilities and innovative competencies but also transforming a firm's capacity to strategies.     

Innovation in R&D service firms: evidence from the UK

Research and Development (R&D) service firms make significant contributions to innovation in other businesses. The extant literature considers these firms a homogenous sub-group of Knowledge Intensive Business Service firms (KIBS). The objective of this study is to investigate how R&D service firms innovate and the variety of innovation practices within these firms. Employing data from semi-structured interviews with senior managers from 32 UK-based R&D service firms, we suggest that there are two different modes of innovation: in the first mode, R&D service firms innovate similarly to KIBS whose innovation is ad-hoc in nature and driven by customers’ requests; another group of R&D service firms innovate like New Technology-based Firms (NTBFs) relying more on structured in-house R&D activities.     

Innovation under the Climate Wise program

This paper examines the impact of participation in the Climate Wise program, one of the largest voluntary programs enacted in the US, on innovative activity by firms. In operation from 1993 to 2000, the Climate Wise program was designed to reduce greenhouse gas emissions by promoting innovation in energy efficiency and energy related activities. We begin by examining what types of firms were most likely to participate in this voluntary initiative. We find that the Climate Wise program was attractive to large firms, more R&D intensive firms, and firms with more financial resources. To consider the impact of Climate Wise participation on the innovative behavior of firms, we investigate whether participants and non-participants differed in the number of successful environmental and non-environmental patent applications between 1993 and 2003. We find some evidence that participation in the Climate Wise leads to a change in environmental patenting but only among less R&D intensive firms.     

Innovation And Inter-Firm Co-Operation: The Case Of The West Midlands

Drawing upon the innovative milieux and industrial districts literature, the paper provides substantial empirical evidence that firms have a greater chance of being innovative if they co-operate with other firms over innovation, albeit undertaking no investment in RLD. This is an important result especially for small firms. In particular, the paper focuses on inter-firm cwperation along the supply chain, using a swey of firms in the West Midlands to investi-gate co-operation over innovation between suppliers and buyers. A probit model is used to test the link between innovation performance and four innovation inputs: R&D expenditure, R&D personnel, networking with suppliers and networking with client firms.     

Industrial districts and financial constraints to innovation

Informational frictions between borrowers and lenders are particularly acute for innovative firms undertaking high‐risk projects. As a consequence, banks may end up denying credit to them. However, the literature on relationship finance predicts that a closer relationship between credit suppliers and obligors is deemed to alleviate information asymmetries, hence preventing credit rationing from occurring. The question of whether such situations also apply to innovative firms has so far remained relatively unexplored. Using a cross‐section of Italian manufacturing firms, I find that credit constraints appear to be more severe for firms undertaking innovative activities, although such effects are weaker when measures of R&D intensity are included. The empirical analysis also shows that firms located in an industrial district have easier access to external finance. If I move to consider firms engaged in substantial R&D activities located in a district, results suggest that they can benefit from better financial conditions.     

A matching analysis of why some firms in peripheral regions undertake R&D whereas others do not

Many studies have established the importance of investment in R&D to facilitate innovation and consequently improve firm productivity. Firms decide whether or not to undertake R&D depending on a range of factors such as market orientation, business objectives, competitive advantages and absorptive capacity. This paper studies the factors that influence this decision in peripheral locations; and for firms that do not undertake R&D, we analyse the reasons for not doing so. The research is based on data from a survey of some 250 matched firms operating in Northern Ireland, about half undertaking R&D and half not. Northern Ireland is an interesting case study because it exhibits a low level of investment in R&D despite the public subsidies and policy initiatives that have existed over the last 30 years. For firms that undertake R&D, our results mostly confirm the findings of others while for firms that do not undertake R&D the results point to a capabilities-gap rather than a resource-gap as the fundamental problem. Policy conclusions are drawn as to what might be done to boost both the amount of R&D undertaken and the number of firms engaged in R&D in peripheral regions.     

Research,Innovation And Productivi[Ty: An Econometric Analysis At The Firm Level

This paper studies the links between productivity, innovation and research at the firm level. We introduce three new features: (i) A structural model that explains productivity by innovation output, and innovation output by research investment: (ii) New data on French manufacturing firms, including the number of European patents and the percentage share of innovative sales, as well as firm-level demand pull and technology push indicators; (iii) Econometric methods which correct for selectivity and simultaneity biases and take into account the statistical features of the available data: only a small proportion of firms engage in research activities and/or apply for patents; productivity, innovation and research are endogenously determined; research investment and capital are truncated variables, patents are count data and innovative sales are interval data.

We find that using the more widespread methods, and the more usual data and model specification, may lead to sensibly different estimates. We find in particular that simultaneity tends to interact with selectivity, and that both sources of biases must be taken into account together. However our main results are consistent with many of the stylized facts of the empirical literature. The probability of engaging in research (R&D) for a firm increases with its size (number of employees), its market share and diversification, and with the demand pull and technology push indicators. The research effort (R&D capital intensity) of a firm engaged in research increases with the same variables, except for size (its research capital being strictly proportional to size). The firm innovation output, as measured by patent numbers or innovative sales, rises with its research effort and with the demand pull and technology indicators, either directly or indirectly through their effects on research. Finally, firm productivity correlates positively with a higher innovation output, even when controlling for the skill composition of labor as well as for physical capital intensity.     

Participation in export markets and the role of R&D: establishment-level evidence from the UK Community Innovation Survey 2005

There is a strong expectation in the literature that exporting and innovation activities (particularly R&D) are strongly related, and that the need to be innovative is increasing over time due to globalization. In this study, we find that R&D is endogenous in a model that determines which British establishments enter export markets, and when such simultaneity is taken into account the strength of the export–innovation relationship is generally quite weak (especially in the nonmanufacturing sector). Rather, we find that the size of establishments and firms, foreign ownership, the extent of international co-operation and, most importantly, the industry sector to which the establishment belongs, are the most significant in explaining which establishments are able to overcome entry barriers into overseas markets.     

Embedding environmental innovation in local production systems: SME strategies,networking and industrial relations: evidence on innovation drivers in industrial districts

Technological innovation is a key factor for achieving better environmental performances. Its role is even more relevant in local productions system, where innovation density, knowledge spillovers and externalities are concentrated in a circumscribed territory. The paper exploits new data for a sample of manufacturing firms in Northern Italy. New evidence is provided by testing a set of hypotheses, concerning primarily the role of environmental‐devoted R&D, networking activities, quality/nature of industrial relations. The role played by environmental policy pressure, structural firm features and past firm performances is also investigated to account for more exogenous forces. We show that structural characteristics of the firm appear to matter less than R&D, induced policy costs and innovative‐oriented industrial relations. Environmental auditing schemes also show some relevant correlation to innovation adoptions. R&D efforts appear to be associated to networking activities, which substitute for size‐related economies of scale. Overall, endogenous factors driven by firm strategy or local idiosyncratic features matter more than exogenous and structural firm factors.     

The Dark Matter of Innovation: Design and Innovative Performance in Dutch Manufacturing1

This paper focuses on the impact of expenditures on design on the innovative performance of Dutch manufacturing firms. The competitive advantage of a firm often depends on its ability to innovate. Past research has shown that investments in research and development (R&D) can play a key role in stimulating innovation, yet relatively few studies have examined the impact of expenditures on design on innovative performance. Using a database containing 2010 firms from the Netherlands, this paper explores the association between expenditures on design and product innovation, highlighting the importance of the new range of ‘downstream’ innovation activities for understanding innovation performance.     

Local variety and innovation performance in the EU textile and clothing industry

ABSTRACT

A large body of the literature showed that related variety at local level is more relevant than unrelated variety for explaining the innovation performance of firms. Knowledge relatedness is usually measured by considering activities within the same industry (i.e. the same two-digit code) while activities in different industries are associated with unrelated variety. This approach is challenged by the increasing relevance of transversal technologies, i.e. technologies that are developed and applied in rather different sectors. As a result, between industry variety (i.e. unrelated variety) is expected to be more important than within industry variety (i.e. related variety). We test this hypothesis by examining the innovation activities of firms in the textile and clothing industry. The innovation model of these firms is characterized by low investment in R&D, little capabilities for autonomous innovation and dependence from knowledge suppliers belonging to different sectors. The empirical analysis, carried out over the 1996–2014 period at the EU NUTS2 level, shows that between industry variety has a greater impact than within industry variety for the innovative performance of firms.     

Strategic Rivalry With Spillovers Within Segmented Versus Integrated Markets

We consider a two-stage game with firms investing in R&D in the first stage while competing [a] la Cournot in the second stage. The firms are located in two countries, which are either segmented or integrated. R&D spillovers occur between firms located in the same country as well as between firms located in different countries.

We first examine the consequences of market integration on the impact of national and international R&D spillovers on innovative efforts, effective R&D, profits and total welfare. Comparing the resulting equilibrium levels, we subsequently conclude that market integration always leads to higher R&D investments and output if international R&D spillovers are limited, while the welfare consequences are ambiguous. Finally, we also analyze the welfare maximization problem of a ‘constrained social planner who can only decide on the level of R&D spillovers.     

Sectoral Patterns Of Technological Change In Services

This article provides a comprehensive picture of the characteristics of innovation in services, using the results of the 1993–95 Italian innovation survey in services. Technological change does play a role in services: around one third of service firms have introduced a technological innovation in the period 1993–95. Process innovation, innovative investment and the acquisition and internal development of software represent the most important channels through which service firms innovate. R&D activities represent an important innovation source only for a small number of science and technology-based service industries. The sectoral analysis highlights the variety of innovative patterns, which should discourage any simple generalization about innovation in services. Accordingly, a sectoral taxonomy is proposed in which service industries are clustered according to the overall innovative performance of firms, the nature of the innovation activities carried out, the different knowledge bases underlying the innovation processes, and the different patterns of interaction through which service firms innovate.     

Measuring innovation in long product development cycle industries: an insight in biotechnology

This paper examines and measures innovation in the context of biotechnology firms by analysing the link between R&D, innovation performance and organisational growth. We conceptualise innovation performance as a latent construct with two dimensions: innovation efficacy and innovation efficiency. We use structural equations modelling to test the hypotheses on a data set from the biotechnology industry. Results support our innovation performance conceptualisation which is found to be especially useful to measure innovation in industries with long product development cycles. Findings also underline the importance of R&D knowledge creation for biotechnology firms.     

How do different motives for R&D cooperation affect firm performance? – An analysis based on Swiss micro data

The starting point of our analysis is the empirical fact that firms pursue different goals when getting engaged in R&D collaborations, often more than one goal at the same time. Given that firms are driven by different motives for R&D cooperation, the aim of this article is to investigate the differences related to different motives with respect to the impact of R&D cooperation on firm innovativeness and firm productivity. Not only R&D cooperation in general but also cooperation driven by each of the seven motives considered in this paper correlate positively with the sales share of innovative products. With respect to innovativeness, the characterization of cooperation by the driving motive did not add much more than could be gained through the overall variable ‘R&D cooperation yes/no’. Technology-motivated collaborative activities show a weaker tendency to positive direct effects on productivity than cost-motivated cooperation. In this case, the distinction of several cooperation motives yields some additional insights as compared to the overall cooperation variable. On the whole, distinguishing various cooperation motives appears to be fruitful because it allows more differentiated insights that would remain hidden behind the overall variable “R&D cooperation yes/no”.     

The impact of pre-IPO performance pressure on research and development investments of an IPO firm: Evidence from China

We derive a simple model to show that pre-IPO performance pressure has a negative impact on an IPO applicant's research and development investments. The findings from the Chinese IPOs in the growth enterprise market (GEM) are consistent with the model's predictions. Further analysis suggests that when the time to listing is shorter, the adverse impact of performance pressure on R&D investments is stronger. While the objective of the GEM is to encourage innovative firms to raise new capital via IPOs to enhance their innovations in the future, the cutting of R&D investments to enhance the probability of receiving IPO approval defeats the purpose. Our findings suggest that it may be useful for a regulatory authority to consider multi-dimensional criteria in IPO approvals for GEMs instead of heavily relying on the pre-IPO performance to sustain a healthy IPO market and innovation activities of a country.