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Determinants of Innovation: The Message from New Indicators by Alfred Kleinknecht

By Alfred Kleinknecht

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In sum, our model retains its explanatory power if we introduce firm size as an additional independent variable, but there is considerable interaction between some of the other variables and firm size. This points to direct size dependency of some determinants of innovation, a topic we are going to investigate further in the next subsection. Finally, we obtain some evidence about the nature of the quantitative relationship between firm size and various innovation measures. The coefficient of the linear term of employees (SIZEL) is always positive and statistically significant.

12 On the one hand, small firms, operating in relatively wellprotected market niches and generating continuous small improvements Spyros Arvanitis and Heinz Hollenstein 51 of products and processes by using extramural knowledge, and protecting themselves against imitation by secrecy as well as by time leads on competitors. On the other hand, large firms creating new products and introducing new processes in an environment of strong, international, primarily non-price competition. They rely more strongly on their own innovative knowledge which is stimulated by basic research done at universities and research laboratories.

Furthermore, additional estimates (not presented here) show that the legal protection of knowledge (APPR 1) is now relevant also in the case of process innovations. As far as the other explanatory variables are concerned, we find no notable changes. Summing up, the identified explanatory pattern reflects not only the binary decision to innovate but also differences with respect to the innovation intensity of firms. Supply-side variables, which have been shown to dominate the estimates with the full sample, become even more important in determining differences of the intensity of firms' innovation efforts.

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