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Cambridge Journal of Economics Advance Access originally published online on June 1, 2007
Cambridge Journal of Economics 2007 31(5):691-710; doi:10.1093/cje/bem010
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Is demand-pulled innovation equally important in different groups of firms?

Mariacristina Piva and Marco Vivarelli*

* Università Cattolica, Piacenza; and Università Cattolica, Piacenza, CSGR, Warwick, IZA, Bonn and Max Planck Institute of Economics, Jena, respectively

Address for correspondence: Marco Vivarelli, Facoltà di Economia, Università Cattolica, Via Emilia Parmense 84, I 29100 Piacenza, Italy; email: marco.vivarelli{at}unicatt.it

Previous empirical literature has tested the demand-pull hypothesis and found that innovation may be driven by output. Using a balanced panel of 216 Italian manufacturing firms (1995–2000) and checking for the path-dependent nature of R&D we find a role of sales in inducing R&D. However, the demand-pull effect plays a varying role for different sub-samples of firms. Exporting firms, liquidity-constrained firms, unsubsidised firms and those not heading a group seem to be sensitive to sales in deciding R&D. These results have been obtained using a Least Squares Dummy Variable Corrected Estimator, a recent panel-data technique suitable for small samples.

Key Words: R&D expenditures • Demand-pull • Innovative firms • LSDVC estimator

JEL classifications: O31, L22

Manuscript received February 16, 2006; final version received February 16, 2007.


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