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Inventive Capabilities in the Division of Innovative Labor

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  • Ashish Arora
  • Wesley M. Cohen
  • Colleen M. Cunningham

Abstract

We study how the inventive capability of a firm conditions its participation in a division of innovative labor. Capable firms are, by definition, able to invent; for them, external inventions substitute for their own R&D. However, external knowledge is an input into internal invention, and thus, more valuable to firms with inventive capability. Using a simple model of innovation and imitation, we explore how inventive capability affects a firm’s R&D investments, and thus whether and how it innovates, imitates, or does neither. Further, we study how these outcomes are conditioned by the supply of external knowledge as well as the supply of external inventions. In an advance over the literature, we treat firm inventive capability as unobserved, and use a latent class multinomial model to infer its value. Using a recent survey of product innovation and the division of innovative labor among US manufacturing firms, we find that high capability firms tend to use internal, rather than externally generated inventions, to innovate, and they use external knowledge to enhance their internal inventive activity. By contrast, lower capability firms are more likely to introduce “me-too” or imitative products, and when they innovate, are more likely to rely on external sources of inventions. Our findings suggest the successful pursuit of R&D-led growth depends both on firm inventive capability and the external knowledge environment.

Suggested Citation

  • Ashish Arora & Wesley M. Cohen & Colleen M. Cunningham, 2018. "Inventive Capabilities in the Division of Innovative Labor," NBER Working Papers 25051, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25051
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    4. Riccardo Crescenzi & Simona Iammarino & Carolin Ioramashvili & Andres Rodriguez-Pose & Michael Storper, 2019. "The Geography of Innovation: Local Hotspots and Global Innovation Networks," WIPO Economic Research Working Papers 57, World Intellectual Property Organization - Economics and Statistics Division.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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