Firm heterogeneity within industries: How important is “industry” to innovation?

Abstract

In this paper we assess how important “industry” is to innovation. Our empirical estimates suggest that “industry factors” matter little to how firms’ search for new innovations. These results offer empirical support to recent evolutionary theory where firms have heterogeneous capabilities and pursue different approaches to innovation. Structural variables at the industry level do however have a substantial influence on the firm level propensity to innovate. This result supports “sectoral innovation system” approaches where firms are “constrained” by technological regimes underlying industry evolution. Hence, the driving forces behind technological evolution are found at both the firm and industry level.