The 'virtuous circle' of innovation in italian firms

The virtuous circle between innovative inputs, outputs and economic performance is investigated in this article with a three equation model highlighting feedback loops and simultaneous relations. An empirical test is carried out considering innovative expenditure, innovative turnover and economic results in a sample of Italian manufacturing firms which are serial innovators. We use data for the period 2000-2008 from a rich panel of Italian firms over 20 employees drawn from ISTAT, the National Institute of Statistics, including data from three waves of Community Innovation Surveys. The model we use extends the one developed at the industry level by Bogliacino and Pianta (2013a, 2013b), confirming previous findings. For the rather limited core of Italian persistent innovators, results show the complex links at play, the lags in the effects of innovative efforts, and the feedbacks between economic success and the ability to sustain innovation expenditure.