Inventive Capabilities in the Division of Innovative Labor

48 Pages Posted: 17 Sep 2018

See all articles by Ashish Arora

Ashish Arora

Duke University - Fuqua School of Business; National Bureau of Economics Research; Duke Innovation & Entrepreneurship Initiative

Wesley M. Cohen

Duke University - Fuqua School of Business; Duke University - Department of Economics; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Colleen Cunningham

London Business School

Date Written: September 2018

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

Arora, Ashish and Cohen, Wesley M. and Cunningham, Colleen, Inventive Capabilities in the Division of Innovative Labor (September 2018). NBER Working Paper No. w25051, Available at SSRN: https://ssrn.com/abstract=3250597

Ashish Arora (Contact Author)

Duke University - Fuqua School of Business ( email )

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National Bureau of Economics Research

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Duke Innovation & Entrepreneurship Initiative ( email )

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Wesley M. Cohen

Duke University - Fuqua School of Business ( email )

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Duke University - Department of Economics

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National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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Durham, NC 27701
United States

Colleen Cunningham

London Business School ( email )

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London, NW1 4SA
United Kingdom

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