DEMAND AND INNOVATION - SCHMOOKLER REEXAMINED

Schmookler's "demand-pull" hypothesis, implying that innovation is a function of market demand, has been widely accepted. Re-reading Schmookler's Invention and Economic Growth we discover a statistical inadequacy. Re-estimating his cross-section results in a different way, we find somewhat lower coefficients. Moreover, the direction of causality appears to be far from obvious. An independent cross-sectional test of the Schmookler hypothesis in the Netherlands, based on R&D instead of patent data, shows similar results: the relationship between indicators of demand and innovation turns out to be generally weaker (but in most cases still significant), and the results suggest that there is a simultaneous relationship between demand and innovation. The latter may be explained by the concept of the "innovation multiplier", which has implications for macro-economic modelling. © 1990.