Networks and innovation: the role of social assets in explaining firms' innovative capacity

The claim of a positive association between a firm's social assets and its inno-vative capacity is a widely debated topic in the literature. Although controversial, such an argument has informed recent innovation policy across Germany, increasingly di-rected to cluster formation. In the light of the growing attention and financial efforts that cluster-based innovation policies are receiving, it is worth answering two main ques-tions. First, are firms with a relatively high level of social capital likely to be more in-novative? Second, do companies pursuing innovation in partnership innovate more? This paper empirically answers these questions by exploring a cross-sectoral sample of 248 firms based in the Jena region. On the one hand, the extent to which a firm is inte-grated in its community life does not contribute to an explanation of its innovative per-formance. On the other hand, directed cooperation with the specific goal of innovating shows a positive impact on innovative performance. However, the correlation between the extent of the network of co-innovators and firms' innovative capacity presents an inverted U-shaped relation: there is a threshold in the number of co-innovators justified by the costs of innovating by interacting. A policy lesson can be drawn from these find-ings: cluster-based policies are to be treated with caution as firms face costs of network-ing and not merely benefits.