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Is money all? Financing versus knowledge and demand constraints to innovation

Gabriele Pellegrino () and Maria Savona ()

No 2013-029, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

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 (search for similar items in EconPapers)
JEL-codes: C23 O31 O32 O33 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-eur, nep-ino, nep-knm, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
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