The gains from technology: new products, exports and profits

The introduction of new products, greater competitiveness-based export performances, and higher profits are three major benefits from technological change. While most studies have investigated such distinct innovation-performance links in isolation, we develop in this article an integrated perspective modeling a ‘virtuous circle’ between these variables that can account for cumulative effects, simultaneous relations and feedback loops. We build on previous work that has identified ‘virtuous circles’ between R&D, innovation and profits in firms and industries (Bogliacino and Pianta, 2013a, 2013b, Bogliacino et al. 2016a) and between R&D, innovation and exports (Guarascio et al., 2015, 2016). We expect that success in new products will lead to faster export growth and this in turn may lead to a higher growth of profits that – with a lag – can finance innovative activities and support continuing product innovation. The model is tested with a Three Stage Least Squares methodology using data at the industry level – for 39 manufacturing and service industries - for six major EU economies - Germany, France, Italy, Spain, the Netherlands and the United Kingdom - over the period 1995-2011. Results confirm the presence of a ‘virtuous circle’ linking the gains from technology, and identify the specific role of additional variables and the presence of lags and feedbacks. Moreover, the relevance of differences between Northern and Southern European countries is examined, with separate estimations that shed new light on the heterogeneity of these relationships.

The introduction of new products, greater competitiveness-based export performances, and higher profits are three major benefits from technological change. We build on previous work that has identified ‘virtuous circles’ between R&D, innovation and profits in firms and industries [Bogliacino, F., and M. Pianta. 2013a. “Profits, R&D and Innovation: A Model and a Test.” Industrial and Corporate Change 22 (3): 649–678; Bogliacino, F., and M. Pianta. 2013b. “Innovation and Demand in Industry Dynamics. R&D, New products and Profits.” In Long Term Economic Development, edited by A. Pyka, and E. S. Andersen. Berlin: Springer., Bogliacino, F., M. Lucchese, L. Nascia, and M. Pianta. 2016a. “Modelling the Virtuous Circle of Innovation. A Test on Italian Firms” Industrial and Corporate Change. doi:10.1093/icc/dtw045.] and between R&D, innovation and exports [Guarascio, D., M. Pianta, M. Lucchese, and F. Bogliacino. 2015. “Business Cycles, Technology and Exports.” Economia Politica–Journal of Analytical and Institutional Economics 32 (2): 167–200; Guarascio, D., M. Pianta, and F. Bogliacino. 2016. “Export, R&D and New Products: A Model and a Test on European Industries.” Journal of Evolutionary Economics 26 (4): 869–905.]. We test a model–with a Three Stage Least Squares methodology–using data at the industry level–for 39 manufacturing and service industries–for 6 major EU economies–Germany, France, Italy, Spain, the Netherlands and the United Kingdom–over the period 1995–2011. Results confirm the presence of a ‘virtuous circle’ linking the gains from technology, and identify the specific role of additional variables and the presence of lags and feedbacks. Moreover, the relevance of differences between Northern and Southern European countries is examined, with separate estimations that shed new light on the heterogeneity of these relationships.