"Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity
The role of innovation in improving productivity might vary according to a country's relative position in technology advancement. Frontier countries might benefit more from policies that promote firms' internal innovation (create), while...
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| Format: | Working Paper |
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World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/270861498570809131/Create-or-buy-internal-vs-external-sources-of-innovation-and-firm-productivity http://hdl.handle.net/10986/27624 |
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okr-10986-276242021-06-08T14:42:47Z "Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity Choi, Jieun PRODUCTIVITY INNOVATION R&D ROYALTIES KNOWLEDGE TRANSFER TOBIT MODEL TECHNOLOGY ADOPTION FOREIGN INVESTMENT The role of innovation in improving productivity might vary according to a country's relative position in technology advancement. Frontier countries might benefit more from policies that promote firms' internal innovation (create), while follower countries would gain more from policies favoring the adoption of existing technologies through innovation outsourcing (buy). However, in many countries, the government policies to promote innovation narrowly focus on "creating," regardless of considerations of the level of a country's technological advancement. This paper investigates the effect of different sources of innovation on output via productivity with representative manufacturing firms in Tunisia from 1997 to 2007. It finds that "buying" has a positive effect on productivity whereas "creating" does not, which might imply that Tunisian firms do not invest sufficiently in "creating," or that "creating" is more difficult for Tunisian firms because they might be too far from the technology frontier. Meanwhile, there is no synergy from using both sources of innovation simultaneously –- a finding that counters literature suggesting that "creating" could enhance firms' absorptive capacity. The paper considers the possibility that "creating" and "buying" substitute for each other in Tunisia, where resources are limited, assuming the effect of innovation is not linear or requires a certain amount of investment (threshold) to positively affect productivity. The estimation result using the Tobit model supports this assumption. The findings suggest that innovation policy in Tunisia should emphasize adoption and adaptation, rather that creation and innovation. To encourage firms' "buying," the government can promote exports and workers' skills, whereas incentives that encourage firms to hire more technicians or to acquire foreign investment might not be efficient ways to encourage "buying." Moreover, the fact that there is a minimum requirement (threshold) for innovation investment suggests that policies that aim to reduce this threshold or support firms around this threshold could catalyze the innovation investment. 2017-07-18T22:22:25Z 2017-07-18T22:22:25Z 2017-06 Working Paper http://documents.worldbank.org/curated/en/270861498570809131/Create-or-buy-internal-vs-external-sources-of-innovation-and-firm-productivity http://hdl.handle.net/10986/27624 English en_US Policy Research Working Paper;No. 8121 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Middle East and North Africa Tunisia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
PRODUCTIVITY INNOVATION R&D ROYALTIES KNOWLEDGE TRANSFER TOBIT MODEL TECHNOLOGY ADOPTION FOREIGN INVESTMENT |
| spellingShingle |
PRODUCTIVITY INNOVATION R&D ROYALTIES KNOWLEDGE TRANSFER TOBIT MODEL TECHNOLOGY ADOPTION FOREIGN INVESTMENT Choi, Jieun "Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity |
| geographic_facet |
Middle East and North Africa Tunisia |
| relation |
Policy Research Working Paper;No. 8121 |
| description |
The role of innovation in improving
productivity might vary according to a country's
relative position in technology advancement. Frontier
countries might benefit more from policies that promote
firms' internal innovation (create), while follower
countries would gain more from policies favoring the
adoption of existing technologies through innovation
outsourcing (buy). However, in many countries, the
government policies to promote innovation narrowly focus on
"creating," regardless of considerations of the
level of a country's technological advancement. This
paper investigates the effect of different sources of
innovation on output via productivity with representative
manufacturing firms in Tunisia from 1997 to 2007. It finds
that "buying" has a positive effect on
productivity whereas "creating" does not, which
might imply that Tunisian firms do not invest sufficiently
in "creating," or that "creating" is
more difficult for Tunisian firms because they might be too
far from the technology frontier. Meanwhile, there is no
synergy from using both sources of innovation simultaneously
–- a finding that counters literature suggesting that
"creating" could enhance firms' absorptive
capacity. The paper considers the possibility that
"creating" and "buying" substitute for
each other in Tunisia, where resources are limited, assuming
the effect of innovation is not linear or requires a certain
amount of investment (threshold) to positively affect
productivity. The estimation result using the Tobit model
supports this assumption. The findings suggest that
innovation policy in Tunisia should emphasize adoption and
adaptation, rather that creation and innovation. To
encourage firms' "buying," the government can
promote exports and workers' skills, whereas incentives
that encourage firms to hire more technicians or to acquire
foreign investment might not be efficient ways to encourage
"buying." Moreover, the fact that there is a
minimum requirement (threshold) for innovation investment
suggests that policies that aim to reduce this threshold or
support firms around this threshold could catalyze the
innovation investment. |
| format |
Working Paper |
| author |
Choi, Jieun |
| author_facet |
Choi, Jieun |
| author_sort |
Choi, Jieun |
| title |
"Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity |
| title_short |
"Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity |
| title_full |
"Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity |
| title_fullStr |
"Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity |
| title_full_unstemmed |
"Create" or "Buy" : Internal vs. External Sources of Innovation and Firm Productivity |
| title_sort |
"create" or "buy" : internal vs. external sources of innovation and firm productivity |
| publisher |
World Bank, Washington, DC |
| publishDate |
2017 |
| url |
http://documents.worldbank.org/curated/en/270861498570809131/Create-or-buy-internal-vs-external-sources-of-innovation-and-firm-productivity http://hdl.handle.net/10986/27624 |
| _version_ |
1764465505515601920 |