Publication: An International Multilevel Analysis of Product Innovation
Abstract
This paper studies multilevel determinants of product innovation by incumbent firms with data from 68 countries, covering over 25,000 firms in eight manufacturing sectors. The author assesses the predictions of interdisciplinary research on firm behavior in different contexts, which have emphasized that product innovation is affected by three sets of factors: the extent of global engagement, information spillovers, and market structure. The empirical model of the probability of observing a product innovation, a probit model, by a firm considers three levels of analysis: firm characteristics, industry characteristics, and the national context. The econometric evidence supports the global engagement and information spillovers hypotheses, but the evidence on the role of market structure is mixed. Regarding global engagement, the evidence suggests that product innovation by incumbent firms is positively correlated with the act of investing in R&D and licensing of foreign technologies, and country-level average import tariffs reduce the probability of product innovation. Regarding information spillovers, the evidence also shows that a country's patent density is positively correlated with product innovation. In contrast, concerning the market structure hypotheses, country-level indicators of business density and of policy-induced costs of entry are not robustly correlated with product innovation.
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Publication Product Innovation by Incumbent Firms in Developing Economies : The Roles of Research and Development Expenditures, Trade Policy, and the Investment Climate(Washington, DC: World Bank, 2007-08)A model of firm innovation illustrates the effects of the threat of imitation and product varieties on a representative firm's decision to invest in research and development to produce new product varieties. The model motivates two empirical questions: (1) Is research and development partially correlated with firms' propensity to introduce new products or product innovation in developing countries? (2) Do trade policies and the national investment climate affect firms' propensity for product innovation? The econometric evidence suggests that the answers are yes and yes, but the investment climate affects product innovation in a manner that is consistent with the presence of market failures and state capture. 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Empirical evidence demonstrates that foreign direct investment and trade can contribute to overall domestic productivity growth only when the technology gap between domestic and foreign firms is not too large and when a sufficient absorptive capacity is available in domestic firms. The paper proposes the terms research and development and labor quality to capture the innovative and absorptive capacity of the country. The spillover effects in productivity are analyzed using a stochastic frontier approach. This productivity (in terms of total factor productivity) is decomposed using a generalized Malmquist output oriented index, in order to evaluate the specific effect in technical change, technical efficiency change, and scale efficiency change. 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