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Cristiano Antonelli and Claudio Fassio

This chapter investigates the heterogeneity of the sources of external knowledge and identifies their differentiated effects on process and product innovations. Upstream vertical sources of external knowledge from suppliers exert a strong and positive role on the introduction of process innovations, while horizontal and downstream vertical sources stemming from competitors and customers respectively have stronger effects on the introduction of product innovations. The evidence supports the hypothesis that matching of sources of external knowledge and types of innovation is necessary to implement successful innovation strategies.

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Cristiano Antonelli, Francesco Crespi and Giuseppe Scellato

This chapter analyses the dynamics of path dependence, exploring the determinants of the persistence of firm productivity, here measured by total factor productivity (TFP). It highlights the crucial role of the interplay between the internal characteristics of companies, including their size and management strategies, and system properties such as access conditions to local pools of knowledge and the dynamics of economic activity in assessing the dynamics. Analysis of transition probability matrices (TPMs) and econometric analysis provide substantial evidence of the relevance of the mix of individual and systemic factors in shaping persistence as a path-dependent process in which events that take place along the process affect its direction and the pace of productivity dynamics.

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Cristiano Antonelli and Gianluigi Ferraris

Analysis of the Marshallian and Schumpeterian microfoundations of endogenous innovation enables us to draw a line between the new emerging evolutionary complexity from biological evolutionary analysis and to overcome its limits. This chapter integrates the Marshallian process of imitation and selection with the Schumpeterian creative response. In Marshall initial variety is given and exogenous, the dynamics of the process is driven by the selective diffusion of best practice and long-term equilibrium stops the generation of externalities; firms are not expected to try to react to unexpected mismatches between planned and actual product and factor market conditions. In Schumpeter firms are allowed to try to react, and the quality of knowledge externalities supports their creative response and may keep the system in a self-sustained process of growth. The Schumpeterian creative response can be regarded as a special case of the Marshallian dynamics that takes place when externalities – available to all firms, including best-performing ones – enable the introduction of innovations that account for the reproduction of superior performance and variety. The levels of reactivity of agents and of quality of knowledge externalities, provided by the system, account for output and productivity growth. This hypothesis is tested by means of an agent-based simulation model that shows how these microfoundations of endogenous innovation are able to generate aggregate dynamics based upon the interaction between individual decision-making and system properties.

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Cristiano Antonelli and Gianluigi Ferraris

This chapter elaborates the notion of innovation as the outcome of creative responses made possible by the quality of knowledge externalities available in the system. As such the introduction of innovations can be analysed as an emerging property of complex system dynamics. The chapter presents an agent-based simulation model (ABM) of an economy where systemic knowledge interactions among heterogeneous agents are crucial for the recombinant generation of new technological knowledge and the introduction of innovations. In this approach the system’s organization plays a crucial role in assessing the chances of individual firms actually introducing innovations because it qualifies access to external knowledge, an indispensable input, together with internal learning and research, in the generation of new knowledge. The introduction of innovations is analysed as the result of systemic knowledge interactions among myopic agents credited with an extended procedural rationality that includes forms of creative reaction. The agents’ creative reaction may lead to the introduction of productivity enhancing innovations. This takes place only when the structural, organizational and institutional characteristics of the system are such that agents, reacting to out-of-equilibrium conditions, can actually take advantage of external knowledge available within the innovation system in which they are embedded to generate new technological knowledge. The ABM enables us to explore the effects of alternative organizational features, namely different configurations of intellectual property rights regimes and architectural configurations of regional structures in which knowledge interactions take place, on rates of technological innovation. The results suggest that the dissemination of knowledge favours the emergence of creative reactions, and hence faster introduction of technological innovations.

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Cristiano Antonelli and Alessandra Colombelli

This chapter implements the notion of s recombinant knowledge generation function, and explores the role of internal and external knowledge in the generation of new technological knowledge. It enables us to appreciate: i) the complementary as opposed to supplementary role of external knowledge; and ii) the role of the size and composition of the internal stock of knowledge. The empirical section is based on a panel of companies listed on the main European financial markets for the period 1995–2006. The econometric analysis is based on simultaneous equations. The results confirm that R & D efforts and external knowledge are indispensable to the generation of new technological knowledge.

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The Evolutionary Complexity of Endogenous Innovation

The Engines of the Creative Response

Cristiano Antonelli

The notion of endogenous innovation as the outcome of the creative response of firms to out-of-equilibrium conditions is the cornerstone of the new evolutionary complexity. This book elaborates and applies the theoretical framework established in the author’s previous work Endogenous Innovation: The Economics of an Emergent System Property. This volume carefully explores the role of the reactivity of firms to out-of-equilibrium conditions. It also examines the quality of knowledge governance mechanisms in assessing the levels of externalities that define the likelihood of creative responses, as an alternative to adaptive responses.
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Cristiano Antonelli

The notion of endogenous innovation as the outcome of the creative response of firms to out-of-equilibrium conditions is the cornerstone of the new evolutionary complexity. This chapter explores the role of the reactivity of firms to out-of-equilibrium conditions and of knowledge governance in assessing the chances that creative responses actually take place as an alternative to adaptive responses. It implements a systemic frame able to show that: i) the quality of knowledge governance is a determinant in making the response of firms creative rather than adaptive; and ii) the levels of firms’ reactivity enhance the rates of introduction of innovations and increase total factor productivity.

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Cristiano Antonelli and Gianluigi Ferraris

This chapter elaborates an agent-based simulation model (ABM) to explore the endogenous long-term dynamics of knowledge externalities. ABMs, as a form of artificial cliometrics, allow analysis of the effects of the reactivity of firms caught in out-of-equilibrium conditions, combined with endogenous knowledge externalities stemming from the levels of knowledge connectivity of the system. The simulation results show the working of endogenous knowledge externalities as well as their powerful effects. At the micro-level, the reactions of firms caught in out-of-equilibrium conditions yield successful effects in the form of productivity-enhancing innovations only in the presence of high levels of knowledge connectivity and strong pecuniary knowledge externalities. At the meso-level, the introduction of innovations changes the structural characteristics of the system in terms of knowledge connectivity that affect the availability of knowledge externalities. Endogenous centrifugal and centripetal forces continually reshape the structure of the system and its knowledge connectivity. At the macro-system level, an out-of-equilibrium process leads to a step-wise increase in productivity combined with non-linear patterns of output growth characterized by significant oscillations typical of the long waves in Schumpeterian business cycles.

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Cristiano Antonelli and Agnieszka Gehringer

This chapter shows how and why the use of external knowledge is necessary to complement the recombinant generation of new knowledge. When access to external knowledge occurs at costs below the social value of knowledge, firms benefit from pecuniary knowledge externalities and are actually able to introduce productivity-enhancing innovations. The empirical evidence on 20 OECD countries confirms that the growth of total factor productivity is negatively associated with the costs of knowledge. Total factor productivity thus increases faster where and when the costs of knowledge are lower.

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Cristiano Antonelli and Alessandra Colombelli

This chapter explores the knowledge cost function, the study of which makes possible important progress in grasping the determinants of the large variance in the cost of innovation across firms. The amount of external knowledge and internal stocks of knowledge that firms can access and use in the generation of new technological knowledge helps firms reduce the costs of innovation. The empirical section is based upon companies listed on the financial markets in the UK, Germany, France and Italy for the period 1995–2006 for which information about patents have been gathered. The econometric analysis of the costs of innovation knowledge considers the unit costs of patents alongside R & D expenditure and the stock of internal and external knowledge for each firm. The results confirm that the stock of internal knowledge and access to external knowledge play key roles in assessing the actual capability of each firm to generate new technological knowledge.