Out of Equilibrium Profit and Innovation
36 Pages Posted: 22 Dec 2008
There are 2 versions of this paper
Out of Equilibrium Profit and Innovation
Date Written: March 20, 2008
Abstract
Innovation is the result of intentional decision-making that takes place in out-of-equilibrium conditions. The farther is profitability from the average and the deeper the out-of-equilibrium conditions. The farther away is the firm from equilibrium and the stronger the likelihood for innovation to take place. The hypothesis of a U-relationship between levels of profitability and innovative activity, as measured by the rates of increase of total factor productivity, is articulated and tested. The evidence of a large sample of 7000 Italian firms in the years 1996-2005 confirms that a strong causal relation holds between the quadratic specification of profitability and the growth rates of total factor productivity. The results are robust to different approaches to evaluate productivity growth rates.
Keywords: Endogenous Technological Change, Out-of-Equilibrium, Profitability, Innovation, Total Factor Productivity
JEL Classification: 033
Suggested Citation: Suggested Citation
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