The Role of Demand in Fostering Product vs Process Innovation: A Model and an Empirical Test

25 Pages Posted: 10 Jul 2017

See all articles by Herbert Dawid

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Gabriele Pellegrino

Catholic University of the Sacred Heart of Milan

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano; IZA Institute of Labor Economics

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Abstract

While the extant innovation literature has provided extensive evidence of the so-called "demand-pull" effect, the possible diverse impact of demand evolution on product vs process innovation activities has not been yet investigated. This paper develops a formal model predicting a larger inducing impact of past sales in fostering product rather than process innovation. This prediction is then tested through a dynamic microeconometric model, controlling for R&D persistence, sample selection, observed and unobservable individual firm effects and time and sectoral peculiarities. Results are consistent with the model and suggest that an expansionary economic policy may benefit the diffusion of new products or even the emergence of entire new sectors.

Keywords: technological change, R&D, demand-pull innovation, dynamic two tobit

JEL Classification: O31

Suggested Citation

Dawid, Herbert and Pellegrino, Gabriele and Vivarelli, Marco, The Role of Demand in Fostering Product vs Process Innovation: A Model and an Empirical Test. IZA Discussion Paper No. 10846. Available at SSRN: https://ssrn.com/abstract=2998955

Herbert Dawid (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Gabriele Pellegrino

Catholic University of the Sacred Heart of Milan

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano ( email )

Largo Gemelli 1
Milano, 20123
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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