Is Demand-Pulled Innovation Equally Important in Different Groups of Firms?
Posted: 16 Jun 2008
Date Written: September 2007
Previous empirical literature has tested the demand-pull hypothesis and found that innovation may be driven by output. Using a balanced panel of 216 Italian manufacturing firms (1995-2000) and checking for the path-dependent nature of R&D we find a role of sales in inducing R&D. However, the demand-pull effect plays a varying role for different sub-samples of firms. Exporting firms, liquidity-constrained firms, unsubsidised firms and those not heading a group seem to be sensitive to sales in deciding R&D. These results have been obtained using a Least Squares Dummy Variable Corrected Estimator, a recent panel-data technique suitable for small samples.
Keywords: R&D expenditures, Demand-pull, Innovative firms, LSDVC estimator
JEL Classification: O31, L22
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