Is Money All? Financing versus Knowledge and Demand Constraints to Innovation

43 Pages Posted: 14 Feb 2016

See all articles by Gabriele Pellegrino

Gabriele Pellegrino

Ecole Polytechnique Fédérale de Lausanne

Maria Savona

University of Sussex

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2013

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.

Keywords: Barriers to innovation, Innovative firms, Potential Innovators, Failed Innovators, Panel data

JEL Classification: C23, O31, 032, 033

Suggested Citation

Pellegrino, Gabriele and Savona, Maria, Is Money All? Financing versus Knowledge and Demand Constraints to Innovation (September 1, 2013). University of Sussex, SPRU Working Paper SWPS 2013-01. Available at SSRN: https://ssrn.com/abstract=2727159 or http://dx.doi.org/10.2139/ssrn.2727159

Gabriele Pellegrino (Contact Author)

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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