Determinants and Effects of Innovation Context Matters

Abstract: Innovation and technological change is the major factor of production, renewal, and competitiveness of firms and nations in the contemporary “knowledge economy”. The overall purpose of this dissertation is to investigate the innovative behavior of firms in various sectors and regions. In particular, I have analyzed the determinants (driving forces) of firms’ innovation on the one hand (in paper 1 and 2), and the effect of firms’ innovation on the other hand (in paper 3 and 4). In addition, a central concern in this dissertation is that context, in which firms operate and innovate, matters for innovation. I take into account several contexts in the analyses of both the determinants and effects of innovation. These contexts are: the regions in which firms are located, the dynamics of industries, and the dynamics of cluster in which firms belong to. This dissertation consists of four separate papers plus an introductory chapter. Each paper can be read independently, but all of them deal with either determinants or effects of the innovation of firms. The first paper analyzes the effect of various firm-specific determinants on firms’ innovation output. It also considers the stages of the Industry Life Cycle (ILC) as a context in which firms operate and innovate. Using the Community Innovation Survey data for manufacturing and service sectors in Sweden during 2002-2004, I find that the importance of various determinants of firms’ innovation depends on the stages of the ILC in which they operate. The second paper is again investigates the determinants of innovation, but this time incorporates another context that affect the innovation, i.e. the regions that firms belong to. Using the patent applications data as a measure of innovation in all functional regions in Sweden during 2002-2007, we find that both the internal knowledge generated within the region and the inflow of external knowledge matter for innovation of firms located in the regions. Moreover, the extent of related variety of knowledge in the region has the superior role to promote innovation. The third paper examines the effect of a firm’s innovation output on firm’s performance. Export behavior of firms is chosen as a performance indicator. Particular attention is devoted to distinguishing between innovation input and innovation output and to isolate their effects on export behavior of firms. Using two waves of Swedish Community Innovation Survey data during 2002-2006 merged with registered firm-level data, I find that what really matters for enhancing the export behavior of firms is the innovation output of firms, rather than the innovation input (mere efforts in investing in innovation activities). The fourth paper also analyzes the effect of innovation on performance measures but this time incorporates another context, i.e. the life cycle of the regional cluster that firms belong to. This paper delves into a particular cluster, i.e. Linköping ICT cluster. Using data collected through interviews during 2009 and 2012 on key cluster actors, we find that innovation is among the factors that are always highly important at any given stage of the cluster’s evolution, however, it has slightly greater importance during the “growing” stage.