Academic journal article Journal of Business Economics and Management

Determinants of Innovation in a Small Open Economy: A Multidimensional Perspective

Academic journal article Journal of Business Economics and Management

Determinants of Innovation in a Small Open Economy: A Multidimensional Perspective

Article excerpt

1. Introduction

In the last few years, policy makers have recognized the importance of innovation in business competitiveness. For most economists, innovation is considered a driving force behind a prosperous economy (Schumpeter 1934; Solow 1957; Lundvall 1992; Nelson 1993; Edquist 1997; Jorgensen, Stiroh 1999). Others point to innovation as the major contributor to the productivity growth and firm performance (Kemp et al. 2003).

At the Lisbon Summit in March 2000, the European Union declared its ambition to make Europe the most competitive and innovative region. According to Post-2010 Lisbon Strategy (European Commission 2008), a long-term perspective is needed to maintain and enhance European living standards considering the ageing (and shrinking) of Europe's population. The improvement of productivity depends on challenges related to new technologies and innovation.

The innovation process refers to the transformation process in an innovation trajectory (Kemp et al. 2003). According to Pianta (2005), innovation is an extremely differentiated process, specific in its scope, nature and potential impact. Different types of innovation have different outcomes insofar as economic performance, depending on the particular strategies followed by firms and industries.

Most of the studies only refer to process and product innovation (Barras 1986; Brouwer, Kleinknecht 1999; Frenz, Ietto-Gilles 2003; Pianta 2005; Utterback 1996). However, other innovation typologies become more relevant to firms. Besides products and services, innovation also includes new processes, new organizational models, new distribution channels or new marketing activities and new business concepts, which have a significant impact on productivity and growth (Schumpeter 1934, 1943; Hjalager 2002; CIS 2004; Drejer 2004; Fagerberg 2005; OECD 2005; Weiermair 2006).This paper aims to identify and analyze contributions made by the seven innovation activities of CIS4 (Community Innovation Survey), considering the four different innovation typologies: product, process, organizational and marketing in a small open economy (Portugal).

There are several studies that use some of the innovation activities of CIS4. Most of these studies have examined the relation between size, R&D or multinationality and innovation (Castellani, Zanfei 2007; Frenz, Ietto-Giles 2003; Frenz et al. 2005; Criscuolo et al. 2010). Considering the use of CIS databases, most of these studies analyze innovation with regard to R&D (Mohnen, Hoareaou 2002; Criscuolo, Haskel 2003; Mairesse, Mohnen 2005; Holzl 2009; Kumi-Ampofo, Brooks 2009). However, other important innovation inputs, such as acquisition of machinery and equipment, acquisition of external knowledge, training, marketing activities and other procedures and technical preparations considered in CIS4 have rarely been explored in innovation studies. Also, some empirical studies confirm differences in innovation behavior by sector (Barras 1986; Utterback 1996; Abramovsky et al. 2004). Others studies (Pires et al. 2008) using Portuguese CIS3 conclude that there are few differences between service and manufacturing with regard to propensity to innovate. In addition, Sirilli and Evangelista (1998) find similarities between service firms and the manufacturing ones.

This finding led us to the research question: "Are all the seven innovation activities of CIS4 important to explain propensity to innovate in manufacturing and service sectors in a small open economy?"

The answer to this question may contribute to a better suitability of the CIS4 to measure firms' propensity to innovate and could provide clues to the formulation of more appropriate public policies.

In the last years several studies used CIS databases. Frenz (2002) identified several aspects to be considered in empirical studies that uses CIS database: 1) possibility of comparison among different CIS editions; 2) use of a large number of observations; 3) analyse categories according with sectors; 4) analyze according with level of knowledge and technology (low, medium and high by sector); 5) possibility to compare the main variables of CIS4. …

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