Center for Innovation Research

CIR pursues and propagates fundamental research on innovation with a focus on the strategic and organizational dynamics associated with innovation and learning at the organizational, intra-organizational, and inter-organizational levels.

CIR

Next CIR Seminar


"EXTERNALITIES OF OPENNESS IN INNOVATION" by Jim Love of Aston Business School, Birmingham

Date: May 25, 2012
Time: 13.00 - 14.30 hrs
Location: DZ 3

Abstract

Discussion of open innovation has typically stressed the benefits to the individual enterprise from boundary-spanning linkages and improved internal knowledge sharing. In this paper we explore the potential for wider benefits from openness in innovation and argue that openness may itself generate positive externalities by enabling improved knowledge diffusion. The potential for these (positive) externalities suggests a divergence between the private and social returns to openness and the potential for a sub-optimal level of openness where this is determined purely by firms’ private returns. In other words without public intervention firms’ innovation strategies may be more ‘closed’ than the socially optimal level. Our analysis is based on Irish plant-level panel data from manufacturing industry over the period 1994 to 2008. Based on instrumental variables regression models our results suggest that externalities of openness in innovation are significant and that they are positively associated with firms’ innovation performance. We find that these externality effects are unlikely to work through their effect on the spread of open innovation practices. Instead, they appear to positively influence innovation outputs by either increasing knowledge diffusion or strengthening competition. Our evidence on the significance of externalities from openness in innovation provides a rationale for public policy aimed at promoting open innovation practices among firms.