Reviving Demand-Pull Perspectives: The Effect of Demand Uncertainty and Stagnancy on R&D Strategy

IEB Working Paper N. 2014/11

48 Pages Posted: 25 Mar 2014 Last revised: 30 May 2014

See all articles by Jose Garcia-Quevedo

Jose Garcia-Quevedo

Barcelona Institute of Economics (IEB); University of Barcelona - Faculty of Economic Science and Business Studies

Gabriele Pellegrino

Ecole Polytechnique Fédérale de Lausanne

Maria Savona

University of Sussex

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

This paper looks at the effects of demand uncertainty and stagnancy on firms’ decisions to engage in R&D activities and the amount of financial effort devoted to it. The paper contributes to the innovation literature in three respects: first, it adds to the revived debate on demand-pull perspectives in innovation studies, by specifically looking at demand-related (lack of) incentives to invest in innovation. Also, importantly, it complements the emerging literature on barriers to innovation in a two-fold way: first, by focusing on demand-related obstacles rather than the more explored financial barriers; second, by analyzing in detail whether experiencing uncertainty or lack of demand is a sector-specific feature, namely whether firms active in high or low tech manufacturing or in knowledge intensive or low tech services are more or less dependent on demand conditions when deciding to perform R&D. We find that uncertain demand and lack of demand are perceived as two completely different barriers. While uncertainty on demand does not seem to constrain R&D efforts, the perception of lack of demand does strongly reduce not only the amount of investment in R&D but also the likelihood of firms to engage in R&D activities. We interpret this evidence in terms of the specific phase of the innovation cycle in which decisions to invest in R&D are taken. Sectoral affiliation does not seem to matter when it relates to demand conditions, supporting the conjecture that positive expectations on market demand is a structural and necessary condition to be fulfilled for all firms prior to invest in R&D.

Keywords: R&D strategy, barriers to innovation, demand uncertainty, lack of demand, innovative inputs, panel data

JEL Classification: C23, O31, O32, O33

Suggested Citation

Garcia-Quevedo, Jose and Pellegrino, Gabriele and Savona, Maria, Reviving Demand-Pull Perspectives: The Effect of Demand Uncertainty and Stagnancy on R&D Strategy (May 2014). IEB Working Paper N. 2014/11. Available at SSRN: https://ssrn.com/abstract=2413441 or http://dx.doi.org/10.2139/ssrn.2413441

Jose Garcia-Quevedo (Contact Author)

Barcelona Institute of Economics (IEB) ( email )

Av. Diagonal 690
Barcelona, E-08034
Spain

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Barcelona
Spain

Gabriele Pellegrino

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
Odyssea 1.04
1015 Lausanne, CH-1015
Switzerland

Maria Savona

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

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