The determinants of innovation: R & D, technology transfer and networking effects

The traditional analysis of innovation has focused on the Schumpeterian hypothesis of a positive link between market power and innovation. This often includes an implicitly linear view of the innovation process, with R & D as a necessary first step. This paper widens the determinants of innovation beyond R & D to include technology transfer and networking effects, thus extending the standard Schumpeterian analysis. When tested on a dataset of c. 1300 UK manufacturing plants, R & D, technology transfer and networking are found to be substitutes in the innovation process, with the two latter intensities especially important in increasing the extent of innovation. There is no evidence that (actual) monopoly power increases the extent of innovation, but there are significant plant and sectoral effects on innovation.