The Economics of Industrial Innovation

Posted: 4 Nov 2009

Date Written: 1982


Examines the historical record of the ascendancy of science-related technology in modern economies, and presents an economic theory of innovation based on that record and it implications for policy-makers. Part One reviews the growth of the chemical, synthetic materials, and electronics industries with particular emphasis on costs, patent rates, firm sizes, marketing efforts, timing decisions. These data support a general theory presented in Part Two concerning the importance of professionalized research and development (R&D) capabilities and market awareness. Empirical data and analysis, including the results of Project SAPPHO, are used to provide further support for the theory. Characteristics of successful innovating firms include R&D strength, marketing abilities, understanding of user needs, and management strength. Implications for optimal firm size and the consequences of and reactions to uncertainty are treated in the remainder of Part Two. Uncertainty is responsible for a continuum of six strategies that firms take to meet the need to innovate, and leads to private under-investment in R&D. Part Three takes up the role of government and national science and technology policies and considers the social effects of technological innovation in terms of business cycles and unemployment figures, using a framework based on Schumpeter and Kondratiev. (CAR)

Keywords: Economics of innovation, Firm strategies, Science policies, Technology policies, Technological change, Industrial research, Policy analysis, R&D, Firm management, Uncertainty, Technology innovation, Economic theory, Innovation process

Suggested Citation

Freeman, Christopher, The Economics of Industrial Innovation (1982). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN:

Christopher Freeman (Contact Author)

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