Network effects, technological opportunity, and innovation: Evidence from the Korean manufacturing firms*

Abstract

Summary This paper analyzes the determinants of firms’ innovative activity using the Korean Innovation Survey (KIS) dataset. We focus primarily on the role of external networks and technological opportunity in performing innovative activities. Product innovation, product improvement, and process innovation are used as proxies for innovative activity. The explanatory variables such as firm size, market concentration ratio, lagged profitability, foreign ownership, export ratio, firm's age, and formal research and development (R&D) activity are also considered. We estimate the logistic regression model using data from 1,124 firms. The research finding indicates that the external networks have a strong positive effect on innovative output regardless of the type of innovation. However, the network effects vary across the type of innovation and by partner (other firms or research institutions). We find that the determinants of a firm's innovative activities differ according to both the type of innovation and the technological opportunity. Another finding is that high‐technological opportunity firms are more innovative than low‐technological opportunity firms in product innovation but not in product improvement or process innovation.