Innovation Complementarity and Scale of Production
33 Pages Posted: 12 Aug 2004
Date Written: July 2004
This Paper is an empirical study on the existence of complementarity between product and process innovation. We present an econometrically feasible model that uses the information contained in the innovation profile of each firm to test for the existence of complementarity among production and innovation strategies. We apply the model to analyze the Spanish ceramic tiles industry where the adoption of the single firing furnace in the 1980s facilitated the introduction of new product designs, as well as to opening new ways of organizing production. Our econometric results show that there is significant complementarity between product and process innovation. We are able to separate the nature of complementarity relationships and thus, our results show that both intrinsic - technologically driven - and induced complementarity - due to firms unobserved heterogeneity - are significant. Small firms tend to be more innovative overall.
Keywords: Complementarity, supermodularity, unobserved heterogeneity, product innovation, process innovation
JEL Classification: C52, L20, O32
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