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Determinants of innovation behaviour and investment estimates for west-german manufacturing firms

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Abstract:

In this paper, the determinants of innovation behaviour and investment are explored with a large micro-data panel from West-German manufacturing firms. The estimates are discussed within a microeconomic model with monopolistic competition, demand uncertainty and a delayed adjustment of capacities and the production technology. The estimates reveal positive firm-size effects which hint towards scale economies associated with innovations. Market power promotes innovations but not investment, and exporters innovate more but exhibit less investment expenditures. Finally, excess demand promotes innovations. This indicates a complementarity of innovations and investment and hints towards permanent productivity effects of temporary demand shocks.

Keywords: Business cycle; Endogenous innovations and investment; Market structure

Document Type: Research Article

DOI: https://doi.org/10.1080/1043859022000029230

Affiliations: University of Ulm, Department of Economics, 89069 Ulm, Germany

Publication date: 2003-10-01

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