Out-of-equilibrium profit and innovation

Cristiano Antonelli and Giuseppe Scellato

Economics of Innovation and New Technology, 2011, vol. 20, issue 5, 405-421

Abstract: Innovation is the result of intentional decision-making that takes place in out-of-equilibrium conditions. Profitability is a reliable indicator of equilibrium conditions, far better than competition, as it integrates the effects of out-of-equilibrium conditions in both product and factor markets. The farther the profitability from the average, the deeper the out-of-equilibrium conditions. The farther away the firm from equilibrium, the stronger the likelihood for innovation to take place. The hypothesis of a U-shaped relationship between levels of profitability and innovative activity, as measured by the rates of increase in total factor productivity (TFP), is articulated and tested. The evidence from a large sample of 7000 Italian manufacturing firms in the years 1996-2005 confirms the presence of a quadratic, convex relationship between profitability and the growth rates of TFP.

Keywords: endogenous technological change; out-of-equilibrium; profitability; innovation; total factor productivity (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (13)

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Working Paper: Out of Equilibrium Profit and Innovation (2009)
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DOI: 10.1080/10438599.2011.562350

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