Persistence Effects of Innovation Activities
Recent empirical evidence indicates that firm performance in terms of productivity is highly skewed and that this heterogeneity is persistent over time (for an overview, see Dosi et al., 1995; Bottazzi et al., 2001; Bartelsman and Doms, 2000). Since innovation is seen as a major determinant of firm’s growth, one hypothesis is that the permanent asymmetry in productivity is due to permanent differences in the innovation behaviour. However, little is known so far about the dynamics in firms’ innovation behaviour, and the evidence is mostly based on patents (see Geroski et al., 1997; Malerba and Orsenigo, 1999; Cefis, 2003a).
KeywordsService Sector State Dependence Innovation Activity Exit Rate Individual Heterogeneity
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- 120.Theories which focus on how firms accumulate technological capabilities may also be considered as “success breeds success” theories since technological capabilities might substantiate sustained competitive advantages (Teece and Pisano, 1994). However, learning can also occur as a result of unsuccessful innovations.Google Scholar
- 121.In contrast to most other kinds of sunk costs, firms can strategically decide upon the amount of R&D expenditure. Costs incurred in this manner are, therefore, referred to as endogenous sunk costs (Sutton, 1991).Google Scholar
- 127.R&D expenditure accounted for 50–55% of innovation expenditure in the period under consideration; see Gottschalk, Janz, Peters, Rammer, and Schmidt (2002).Google Scholar
- 129.Manez Castillejo et al. (2004) reported transition rates for only small and large firms. Using a weighted average, one would get an exit rate of about 17% and an entry probability of 8%.Google Scholar
- 130.This result coincides with the decline in the share of innovators at the aggregate level, see Fig. 2.1. A main cause for this somewhat astonishing development was a severe shortage of high-qualified personnel in 2000, hampering a large number of small and medium-sized firms in their innovative efforts (see Janz, Ebling, Gottschalk, Peters, and Schmidt, 2002).Google Scholar
- 133.But, Monte Carlo studies have shown that this estimator performs quite well for 8 or more time periods. The estimator is based on the idea of getting a reparametrisation in such a way that the incidental parameters are information orthogonal to the other parameters which reduces the order of the bias of the maximum likelihood estimator without increasing its asymptotic variance (see Cox and Reid, 1987).Google Scholar
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