Varieties of innovation and business survival: Does pursuit of incremental or far-ranging innovation make manufacturing establishments more resilient?

Abstract

The transition from an industrial economy to an innovation economy poses two critical questions for the manufacturing sector in advanced countries. First, given the diffusion of modern manufacturing practices around the world, what level of innovation (incremental, more far-ranging, or radical) is most likely to support a resilient domestic manufacturing sector? Second, are assumed differences in the innovative capacity across space likely to hasten the decline of rural manufacturing? To answer these questions this research combines comprehensive measures of self-reported innovation able to reliably differentiate incremental and more far-ranging innovation with establishment-level data able to examine the geographical distribution of these different innovation strategies. The data used for the analysis includes a two-period panel of manufacturing establishments surveyed in 1996 and 2013 with annual employment data indicating survival in the intervening years. Our findings suggest that long-surviving manufacturing plants overwhelmingly gravitate away from non-innovation strategies toward incremental or more far-ranging innovation orientations. A survival advantage of far-ranging innovation over incremental innovation is observed for standalone firms. We do not identify a difference in the innovation orientations of rural and urban manufacturing establishments.