Concentration of Innovation Investments Along the Business Cycle

Abstract

This paper addresses the question of the impact of demand reductions on firms’ concentration of innovation investments. Evidence is drawn from the PITEC database, which includes a stable panel of firms yearly surveyed in the 2006–2013 period. Controlling for selection, firms in the sample are found, following a demand decrease, to reduce the number of innovation investment categories. The effect of demand decreases is stronger for small firms. No evidence is found of exporting being a moderator of the relationship between demand fluctuations and the concentration of innovation investments. These findings suggest that downturns reduce the diversity in the innovation of firms, which could potentially have long-lasting effects on their innovation activities, and, ultimately, on their competitiveness.