Is Innovation Persistent at the Firm Level? An Econometric Examination Comparing the Propensity Score and Regression Methods

Abstract

At the macroeconomic level, the persistence of technological change allows sustainable growth. But do the innovations come from the same set of firms or from a continuous renewal of innovators? On this point, the assumptions underlying the endogenous growth models differ and innovation persistence at the macroeconomic level can be supported by different firm-level behavioral assumptions. The aim of this article is threefold. Firstly, we evaluate a measure of the degree of innovation persistence at the firm level. Secondly, we analyze the factors underpinning the innovation persistence by testing the theoretical explanations that have been proposed in the literature. Lastly, we examine the robustness of the standard econometric methods used in innovation economics. We show that the persistence of innovation is strong at the firm level and that the right theoretical modeling depends on the size of the firm. While the small firms reveal strong learning-by-doing effects in the production of innovation, the persistence of innovation in the large firms relies on the persistence of formal research and development investments.