The Relationship between Firm Investments in Technological Innovation and Political Action

Abstract

Economic theory recognizes the importance of investments in both technological innovation and political activity in firm behavior, and extensive research exists which examines independently these expenditures. However, surprisingly little attention is devoted to analyzing technological innovation and political action expenditures jointly. Technological innovation and political action are two of the options firms face regarding how to achieve lower costs or market power; the characteristics of these choices not only affect the degree to which each is used, but also have widely divergent normative and policy implications for society. Furthermore, many forms of technological innovation require regulatory approval, so that firms may use the two forms of investment in conjunction with each other in addition to treating them as separate investment alternatives. This paper investigates the relationships between firm investments in technological innovation and political activity. Both forms of investment seek to lower costs and/or create market advantage, but economists have long recognized the social importance of technological innovation to economic growth, while treating most firm political activity as inefficient. Growing social concerns surrounding declining innovation, productivity, and growth and increasing firm political activity suggest that these are timely dimensions to explore jointly. In the next section I discuss the relationship between firm investments in technological innovation and political action. This discussion motivates the subsequent empirical modelling presented in section III. Because of the possibility of simultaneity between firm spending in research and development (RD these results hold true to various degrees over industries and industry groups. Section VI offers conclusions and suggestions for further research.