Internal and external factors in innovation persistence

Abstract

This paper contributes to the analysis of the persistence of innovation activities, as measured by total factor productivity (TFP), and explores its internal and external determinants stressing its path-dependent characteristics. The external conditions, namely the quality of local knowledge pools and the strength of the Schumpeterian rivalry, along with the internal conditions (the actual levels of dynamic capabilities, as proxied by wage levels and firm size) exert a specific and localised effect upon the persistent introduction of innovations. A multiple transition probability matrixes (MTPMs) approach has been implemented to capture the contingent effects of external factors on long-term innovation persistence. The empirical analysis of the dynamics of firm-level TFP for a sample of approximately 7000 Italian manufacturing companies observed during the years 1996–2005 is based on both the comparison of different transition probability matrixes and on dynamic discrete choice panel data models. The evidence provided by the test of MTPMs in sub-periods suggests that innovation persistence is path-dependent, as opposed to past-dependent.

Keywords:

• knowledge cumulability
• knowledge externalities
• innovation
• persistence
• sequential Markov chains
• path dependence
• TFP

JEL Classification::

• O31
• C23
• C25
• L20

Acknowledgements

The authors acknowledge the financial support of the European Union D.G. Research with grant number 266959 to the research project ‘Policy Incentives for the Creation of Knowledge: Methods and Evidence’, within the context Cooperation Programme/Theme 8/Socio-economic Sciences and Humanities, of the Collegio Carlo Alberto, of the University of Torino, of the Politecnico di Torino and of the Roma Tre University. The comments and suggestions of two anonymous referees are also gratefully acknowledged. The usual disclaimers apply.

Notes

For a discussion of the properties of different estimation approaches see Blundell and Bond (1998) and Olley and Pakes (1996).

A regular TPM is an irreducible matrix with at least one of the diagonal elements different from zero.

The model has been estimated with the STATA routine redprob, developed by Stewart (2007). For more details see http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/stewart/stata.