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The Role of Liquidity Constraints in Fuelling The Demand-Pulled Innovation

Journal Name:

  • Ege Akademik Bakış Dergisi

Publication Year:

  • 2010

Key Words:

Author NameUniversity of AuthorFaculty of Author
Abstract (2. Language): 
The motivation to classify industries in their effort to innovate with the structure of demand, lead to a theoretical controversy in innovative activity known as ‘demand-pull’ versus ‘technology-push’ forces of technical change. Previous empirical literature has provided evidence supporting demandpulled innovation both at the aggregate level and at the firm level. This paper studies a dynamic specification of the demand-pull hypothesis at the firm level, which takes into account both the within and the between effects across Turkish non-financial firms listed at Istanbul Stock Exchange (ISE) over a period of ten years (1998–2007). Moreover, the study also investigates the demand-innovation relationship in liquidity constrained firms since inducing an increase in the effort to innovate mostly depends on the funding of expensive and uncertain R&D activities. Our findings confirm the demand-pull hypothesis, yet the role of sales in inducing R&D expenditures is 99% significant in the overall sample. More specifically, liquidity constrained firms and firms not receiving public subsidies seem to be particularly sensitive to sales when deciding how much to spend on R&D.
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REFERENCES
1. Establishments employing fewer than 250 people are classified as
‘‘small and medium-sized enterprise’’ (SME). Large-scale enterprises
(LSE) employ 250 or more people.
2. Sector is defined at the ISIC (revision 2) 2-digit level.
3. For a further discussion on LSDVC estimator and the finite-sample
performance of three bias corrections with different estimators
(Anderson–Hsiao, Arellano–Bond and Blundell–Bond), see Bruno
(2005b).
4. The ‘long-run’ elasticity takes into account the impact of both current
and lagged sales according to the formula
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