DP2712 Complementarities in Innovation Policy

Author(s): Pierre Mohnen, Lars-Hendrik Röller
Publication Date: February 2001
Keyword(s): Complementarity, Innovation, Supermodularity
JEL(s): L5, O31, O38
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2712

This Paper develops a framework for testing discrete complementarities in innovation policy using European data on obstacles to innovation. We propose a discrete test of supermodularity in innovation policy leading to a number of inequality constraints. We apply our test to two types of innovation decisions: to innovate or not, and if so, by how much. We find that industries display a considerable amount of complementarity, with some industries being complementary across all obstacles. We also find that the lack of internal human capital (skilled personnel) is complementary to all the other obstacles in almost all industries. In this sense, our results suggest that internal human capital is key to any innovation policy, insofar that it is complementary to all the other factors that might hamper innovation activities.