The impact of demand on innovation and research intensity

The paper investigates the relationship between demand, innovation and research intensity (R&D to output and patents per millions of hours worked) in different groups of industries. These relationships were investigated using disaggregate industry-level data from EU KLEMS, ANBERD and USPTO, in a sample that comprises 12 industries in 18 countries over 1977-2006. The results reported in the paper indicate that demand exerts a positive and significant impact on innovation, measured by R&D expenditure and patents. Moreover, this impact is stronger in high-tech industries than in low-tech ones. The paper also provides evidence that demand does not impact research intensity, despite its impact on innovation. This finding holds both for low-tech and high-tech industries, using both R&D to value added and patents per millions of hours worked as measures of research intensity. This suggests that research intensity is not influenced by demand growth, but most likely depends on the quality of each country's National Innovation System.