Innovate to Resist: Are Innovators Shielded from External Shocks?

Abstract

Economic shocks are often difficult to predict, as they are independent of the will of the economic agents affected and, therefore, exogenous to their choices. However, the effects of such shocks when they occur impact on national economies, business performance, and employment of individuals, thus shaking countries’ economies, and often with long-lasting effects. Although it is difficult to predict their occurrence, it is possible to withstand the consequences of exogenous shocks and be more resilient should they occur. Investing in order to be at the frontier of innovation is one of the tools that economies can adopt to protect their agents, thus defending them from the downturns that can result from unexpected economic events. In this paper, we study whether being more innovative does protect Italian provinces from the negative effects of exogenous shocks, with a focus on employment levels. The object of the analysis is, more specifically, the role of the innovation stock in protecting provinces’ employment levels from trade and economic shocks. The analysis, conducted in the period 2000–2018, examines the effect of trade shock on Italian provinces’ employment levels, and the role of the innovation stock in preserving those levels. Our results confirm that innovative provinces are more protected from external trade and economic shocks, with this effect being evident in both Southern and Northern regions, and despite the level of internationalization of provinces.