Cross-sectoral differences in the drivers of innovation: Evidence from the Irish Community Innovation Survey

The purpose of this paper is to analyse differences in the drivers of firm innovation performance across sectors. The literature often makes the assumption that firms in different sectors differ in their propensity to innovate but not in the drivers of innovation. The authors empirically assess whether this assumption is accurate through a series of econometric estimations and tests.

The data used are derived from the Irish Community Innovation Survey 2004-2006. A series of multivariate probit models are estimated and the resulting coefficients are tested for parameter stability across sectors using likelihood ratio tests.

The results indicate that there is a strong degree of heterogeneity in the drivers of innovation across sectors. The determinants of process, organisational, new to firm and new to market innovation varies across sectors suggesting that the pooling of sectors in an innovation production function may lead to biased inferences.

The implications of the results are that innovation policies targeted at stimulating innovation need to be tailored to particular industries. One size fits all policies would seem inappropriate given the large degree of heterogeneity observed across the drivers of innovation in different sectors.

The value of this paper is that it provides an empirical test as to whether it is suitable to group sectoral data when estimating innovation production functions. Most papers simply include sectoral dummies, implying that only the propensity to innovate differs across sectors and that the slope of the coefficient estimates are in fact consistent across sectors.