Industry and country effects on innovation effort

Purpose - The purpose of the paper is to study the determinants of firms' innovation effort using the main approaches in strategic management. The authors specifically analyze the joint effects of industry structure and country characteristics on innovation effort while controlling for firm resources. Design/methodology/approach - The hypotheses proposed are tested using a data set that includes firms registered in the EU Industrial R&D Investment (IRI) Scoreboard (European Commission, 2011). Specifically, the authors designed and applied a Generalized Method of Moments (GMM) method to perform an empirical analysis using a panel of 1,211 innovative firms in 55 industries and 26 countries between 2004 and 2012. Findings - Country factors have significant effects on innovation effort. Results also indicate that the moderating and complementary effects of industry and country factors depend on the geographical area. Practical implications - Although managers have generally tended to take into account only the firm perspective in innovation activities, this paper highlights that institutional factors are also relevant and play a key role in innovation effort. The authors provide suggestions for managers on how to ensure that their investment in innovation is efficient. They also suggest that the effect of some institutional factors may be modified by competitive pressure on firms' innovation effort. Originality/value - The paper makes an incremental contribution to the literature on the determinants of innovation by providing a different approach to firm innovation determinants and taking into account the complementarities between institutional and industrial factors.