Reviving demand-pull perspectives: The effect of demand uncertainty and stagnancy on R&D strategy

Jose Garcia-Quevedo, Gabriele Pellegrino and Maria Savona ()

Cambridge Journal of Economics, 2017, vol. 41, issue 4, 1087-1122

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 these. The paper provides a number of contributions to the innovation literature: first, it adds to the revived debate on demand-pull perspectives in innovation studies by examining demand-related (lack of) incentives to invest in innovation. Second, it complements the literature on barriers to innovation by focusing on demand-related obstacles rather than the more frequently explored financial barriers. Third, it analyses whether experiencing demand barriers is a sector-specific feature. Firms active in high- or low-tech manufacturing or in knowledge-intensive or low-tech services might be 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 quite distinct barriers. While the perception of a lack of demand has a marked negative impact not only on the amount of investment in R&D but also the likelihood of firms to engage in R&D activities, demand uncertainty seems, on the contrary, to represent an incentive to spend more in R&D, although only in low-tech sectors. 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 seems to be playing a role only for demand uncertainty, supporting the conjecture that positive expectations on the presence of adequate market demand are a necessary condition to invest in R&D.

Keywords: R&D strategy; Barriers to innovation; Demand uncertainty; Lack of demand; Innovative inputs; Panel data (search for similar items in EconPapers)
JEL-codes: C23 O31 O32 O33 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Reviving demand-pull perspectives: the effect of demand uncertainty and stagnancy on R&D strategy (2014)
Working Paper: Reviving demand-pull perspectives: The effect of demand uncertainty and stagnancy on R&D strategy (2014)
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