The influence of market demand upon innovation: a critical review of some recent empirical studies

Abstract

Introduction Until quite recently, economists devoted little attention to the factors that influence the rate and direction of innovation. Much of the formal economic theory on technical change is really concerned with the description of the consequences of technological innovation at a very high level of aggregation or abstraction. (We have in mind here the works of such economists as Harrod, Hicks and Denison.) Little consideration has been paid to the study, at a less aggregated level, of the specific innovative outputs of industries and firms, and the forces explaining differences among industries, firms, and nations. Serious empirical work on biases and inducements in the innovation process, at an industry or firm level of analysis, is even more conspicuously lacking. A recent theoretical literature has been rather inconclusive–with results turning to a distressing degree upon the nature of the assumptions and the particular form of characterization of rational behavior. An understanding of the innovation process at this level is, however, essential. Obviously, an understanding of the influences that motivate innovation, and channel its direction, is necessary if government intervention is to be successful in increasing the production of useful innovations in specific areas. Awareness of the need for empirical analyses along these lines has been joined to a sense of greater urgency concerning the need for conscious intervention on the part of the government, in view of the growing concern with problems of slower growth in productivity and income, environmental and urban decay, and resource, energy and balance-of-payments constraints that appear to face many countries in the 1970s and beyond.

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