Macroeconomic Dynamics and Innovation: SME innovation in the Netherlands, 1999-2009

While numerous academic studies sufficiently bond the emergence of (radical) innovations to macroeconomic growth (Plosser (1989); Freeman and Perez (1988); Mansfield (1983); Mensch (1979); Jovanovic and Lach (1997); Giedeman and Simons (2006)), the competitive mechanisms that influence small firm innovation activity are under-theorized and empirically under-represented (see Heger (2004)). Moreover, policy-maker tend to assume a “one-size-fits-all” stimulus agenda can be implemented nation-wide to enhance innovation activity in small firms, i.e. suggesting that supportive policies for the macroeconomic climate will have the same effect on all industries, while in reality, firm and industry innovativeness results in different effects from the macro-economy. Therefore, our main research question asks to what extent and how do macroeconomic dynamics affect product innovations. We take a quantitative approach by examining innovation survey responses from small and medium sized enterprises (SMEs) from 1999-2009 in the Netherlands. Methodologically, we utilize logistic regressions on the pooled cross-section dataset to examine statistically significant effects at an aggregate, innovativeness, and sector level using macroeconomic indicators such as Real GDP, domestic consumption, unemployment rates, and long-term interest rates. Findings suggest that innovativeness of firms and industries results in varying significant effects from the macroeconomic condition. Policy should account for sector specifics and innovativeness when considering future innovation stimulus objectives.Length: