The novelty of innovation and the level of development

Abstract

Innovation has its most important impact on the economy through the diffusion of new technical knowledge, from its first worldwide implementation in the production of goods and services to its adoption and adaptation by enterprises located in different places across the globe. One way to identify whether an enterprise creates new knowledge or uses already existing knowledge is to measure the novelty of the innovation in various markets, namely whether the innovation is new to the world, country and local market, or only to the enterprise. While innovation new to the enterprise may be only capturing the ability of an enterprise to use and adopt new knowledge, it is also a precondition for economic growth and development. Pooling information from the Third Community Innovation Survey carried out in thirteen European countries, including several countries significantly behind the European average per capita income, we estimate an ordered probit model that relates the novelty of product innovation to structure, strategy and capabilities of enterprises. The study shows that research and marketing capabilities boost the outcome most in the frontier countries, while process upgrading and foreign ownership make much more difference in catching-up countries. This illustrates how the nature of the innovation process changes with the increasing distance from the technology frontier.