The impact of the EU General data protection regulation on product innovation

Abstract

In May 2018, a new regulation, the General Data Protection Regulation (GDPR), on data protection came in the European Union into force. It requires firms to update their data protection strategy and may complicate the use of data related to individuals, with potentially adverse effects on product innovation. This study provides evidence on the likely impacts of the GDPR on innovation. We employ a conditional difference-in-differences research design and estimate firm fixed-effects models based on data from the German innovation survey. We find that the GDPR led to a substantial shift from radical to incremental product innovation. Our finding indicates that the GDPR stimulated firms to re-organise their data management in a more profound way than they would have done in the absence of the regulation, opening up opportunities for improving existing products. The additional resources needed for complying with the GDPR limited their capacity for developing entirely new products.