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No money, no honey? Financial versus knowledge and demand constraints on innovation

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journal contribution
posted on 2023-06-09, 04:33 authored by Gabriele Pellegrino, Maria SavonaMaria Savona
The paper adds to the literature on the barriers to innovation in two ways. First, we assess comparatively what mostly constrains firms’ ability to translate investment in innovation activity into new products and processes, whether it is mainly finance, as most of the literature would suggest, or whether it is mostly knowledge and market-related aspects. Second, we suggest a method to correct for the sample selection bias that often affects empirical contributions to this scholarship. By filtering out firms that are not interested in innovation from those that struggle to engage in it, we obtain a relevant sample of potential innovators, which allows us to analyse the comparative effect of financial and non-financial barriers on innovation success. We find that demand-side factors, particularly concentrated market structure and lack of demand, are as important as financial constraints in determining firms’ innovation failures. This evidence redirects attention from financial to non-financial barriers by considering traditional demand, market structure and regulation factors involved in reduced firm innovation performance. The empirical analysis is based on an unbalanced panel of firm-level data from four waves of the UK Community Innovation Survey (CIS) between 2002 and 2010 merged with data from the UK Business Structure Database.

Funding

ISIGrowth: Innovation-fuelled, Sustainable, Inclusive Growth; G1610; EUROPEAN UNION; 649186

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Research Policy

ISSN

0048-7333

Publisher

Elsevier

Issue

2

Volume

46

Page range

510-521

Department affiliated with

  • SPRU - Science Policy Research Unit Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2017-01-05

First Open Access (FOA) Date

2018-07-12

First Compliant Deposit (FCD) Date

2017-01-05

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