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Technological Innovation:
Concept, Process, Typology
and Implications in the Economy
Mihaela DIACONU
“Petre Andrei” University of Iaşi
mhl_dcn@yahoo.fr
Abstract. Growing interest worldwide to boost innovation in
business sector activities, especially the technology, is intended to
maintain or increase national economic competitiveness, inclusively as
an effect of awareness concerning the effects resulting from economic
activity on consumption of resources and environment, which requires
design of new patterns of production and consumption. In this paper we
review the most important contributions in the literature in terms of the
implications of technological innovation in the economy, at the micro-
and macroeconomic level, viewing the organization's ability to generate
new ideas in support of increasing production, employment and
environmental protection, starting from the concepts of innovation,
innovation process and, respectively, from the innovation typology
analysis.
Keywords: technological innovation; innovation process; eco-
innovation; research and development; economic development.
JEL Code: O33.
REL Code: 18D.
Theoretical and Applied Economics
Volume XVIII (2011), No. 10(563), pp. 127-144
Mihaela Diaconu
128
1. Introduction
Which are the implications of innovation in economic and social life? The
answer to this question, as one can argue, is based on the meaning of the term
innovation. A widespread perception on innovation is one that refers to advanced
technology solutions offered by using the latest knowledge. Such innovations are
mainly considered to be the result of highly skilled workforce and businesses
activity with significant research and development intensity, having close
linkages to the most important centers of excellence in the scientific world. The
significance of innovation is, however, broader and includes innovations that are
not achieved within high-tech industry mentioned above. From this last
perspective, innovations do not include only new products or processes, but also
cover the improved ones resulted from the so-called low-tech sectors, which may
have cumulative economic and social effects as important.
Growing interest worldwide to boost innovative activity of enterprises,
especially technological innovation, is intended to maintain or enhance the
competitiveness of national economies, but also is a result of awareness of the
effects on consumption of resources and environment impact resulted from
economic activity, which requires design of new patterns of production and
consumption. In this paper, we discuss the ways in which technological
innovation contributes to economic development. In the context of this analysis,
we look to sustainable development of organizations as a result of their ability
to generate new ideas in support of increasing production, employment and
environmental protection. Therefore, section 2 is allocated to the concept of
technological innovation and innovation process, taking into account attributes
recently incorporated into the symbolic reflecting the impact of different types
of innovations obtainable on the economic and social life. Since the implica-
tions of different types of technological innovation in the economy still
comprise a controversial topic in the literature, especially in the empirical one,
we consider first to analyze the types of innovations in section 3, from
different points of view. In section 4 we outline the theoretical and empirical
existing framework regarding the incidence of technological innovation in the
economy by reviewing the most important contributions to literature and
section 5 concludes.
2. Technological innovation concept and innovation process
The Schumpeterian point of view approaches economic development as a
qualitative changes process, as consequences of innovation. Thus, J. Schumpeter
addresses innovation as a function of entrepreneurial activity, in which “new
Technological Innovation: Concept, Process, Typology and Implications in the Economy
129
combinations” of existing resources occur. The definition offered by
Schumpeter in the Theory of Economic Development (1934) is continuing to be
referential in associating “new combinations” of production factors of new
products and services, introducing new production processes, marketing and
business organization.
In principle, the literature operates with distinguishing invention from
innovation. For example, F. Malerba (1997) defines invention as a new idea, a
new scientific discovery or a technological newness (which has not been
implemented and diffused), while innovation refers to a tradable application of
an invention, as a result of invention integration into economic and social
practice. Innovation is regarded, therefore, being a result of a process that starts
with an idea genesis and continues with its materialization. In the same
Schumpeterian context, Oslo Manual (2005) defines innovation to be an
activity that produces new or significantly improved goods (products or
services), processes, marketing methods or business organization. In this
framework, according to Frascati Manual (OECD, 2002), technological
innovations comprise new or significantly modified technological products and
processes, where technological novelty emerges, unlike improvements, from
their performance characteristics.
Consequent to afferent processes interrelations, dissociating invention
from innovation is not always possible, especially for technological innovation.
Nevertheless, the fact that there may be differences even of some decades
between the occurrence of innovation and of invention, which reflects different
demands of coming over upon an idea and its implementation into practice is
known, including due to fact that certain conditions are not fulfilled for
diffusing (still insufficient demand, production impossible consequent to lack of
input or production complementary factors that are not available yet). In
addition, an invention implementation might need, in its turn, supplementary
inventions and innovations for the innovation process success.
As K. Pavin (1987, p. 9) notes, “most technologies are complex and are
cumulative. They are specific for companies at whose level technologic activity
predominantly occurs”. While inventions may result from different economic
and social environments, innovations are mainly a result of the firm’s activity.
To be capable to utilize an invention and turn it into innovation, the firm should
efficiently combine information, human, financial and material resources and
existence of a functional distribution system is needed. From such perspective,
the inventor’s role differs from that of innovator’s (person or organization unit
responsible for required factors combination, in Schumpeterian vision named
“entrepreneur”).
Mihaela Diaconu
130
Difficulty to differentiate between invention and innovation also comes
from the innovation process continuity, as S.L. Kline and N. Rosenberg (1986,
p. 283) were to note: “it is a serious mistake to treat an innovation as if it were a
well-defined, homogenous thing that could be identified as entering the
economy at a precise date – or becoming available at a precise point of time.
The fact is that most important innovations go through drastic changes in their
lifetimes – changes that may and often do, totally transform their economic
significance. The subsequent improvements in an invention after its first
introduction may be vastly more important, economically, than the initial
availability of the invention in its original form”. Hence, invention can be often
an outcome of a long process in which numerous interrelated innovation
processes are involved.
Innovation processes do not show the same characteristics regarding
financial resources engaged and obtainable outcomes, but present
differentiations at the enterprise level according to the innovation type, firm’s
size or its strategy and experience in innovation area. Diversity of innovative
processes generates difficulties in analyzing costs and results of innovation
activities by using micro-aggregated data. Therefore, the study of innovative
activity of companies is focused on the innovation facilitators and their effects
in terms of business competitive advantages obtainable by sector or economy as
a whole. Nevertheless, we depict some common features of innovation
processes:
they imply exploring opportunities for achieving new/improved goods
(products and services) based upon technical knowledge as well as the
market demand change or a combination of the two. Investment efforts
of technological innovation predominantly correspond to
“development and production engineering, in which knowledge is
accumulated by experience in production, learning by using and
learning by doing (Pavitt, 1987, p. 9);
it is impossible an accurate prevision of costs and performances
involved in the innovation process mainly based on research and
development and the users’ reaction to the new artifacts.
Difficulties in analyzing of innovation business activity are due, in our
opinion, to the fact that innovation is not a linear process consisting of
sequential, time and conceptual-distinctive stages that define unidirectional
causalities. Innovation is based on the use of previously acquired knowledge, on
the results of new technologies, on the technological development or on the new
combinations of existing technology. However, the “linear model” (Figure 1) –
while it does not depict all possible connections between the stages of
innovation process and, respectively, by reconsidering the earliest ones by the
Technological Innovation: Concept, Process, Typology and Implications in the Economy
131
enterprise which, in turn, can lead to new innovations – is useful in
comprehending innovation process in acceptance of dependence unfolding of
each stage according to preceding one finalization.
Figure 1. Technological innovation process
Knowledge emerged from theoretical and experimental activity in terms
of fundamental or applicative aspects of phenomena, as well as the use of
knowledge gained as a result of practical experience form the first stage of the
innovation process, followed by the translation of knowledge into artifacts,
production and diffusion. Since the implementation of the other stages depends
on the achievements of research stage, its importance becoming obvious.
Not all companies, however, adopt an innovation mode based on research
and development within their structures defined according to Frascati Manual
as “systematic and creative activities, initiated to increase the volume of
knowledge” (OECD, 2002, p. 30). R&D is only the tip of technological
development and innovation process and, in addition to research and
development, it requires acquisition, integration into practice and the use of
technological skills to high levels of complexity, productivity and quality, but
also designing, engineering and managerial abilities for acquisition of
technology and to ensure a continuous flow of improvements and generate
innovations. R&D is more relevant for firms near the technological frontier or
at the frontier. Technology acquisition and the use of skills, on the other hand,
are more relevant for firms that assimilate technology to create improved
technologies.
Companies innovate consequently to demand on the market and, in
principle, innovation process begins with reviewing and combining all existing
knowledge, which supposes inclusively appealing to innovation users and the
use of information as important innovation sources. Opening to new ideas and
innovative solutions is essential, especially in the early stages of the process,
Invention
Reesearch
Applied
DiffusionInovation
Technological innnovation process
Reseasch and development
Technological
development
Basic
Mihaela Diaconu
132
allowing decision-making through ideas, knowledge and skills combination and
congealing them in different ways leads to more complex innovations.
In fact, the innovation process depends essentially on external conditions;
designing of new technologies results from interactions with customers,
suppliers, competitors and various other public and private organizations. This
explains why clusters, competition and other business linkages are so important
for the process of technological development. In this context, innovation seen
as a system, in terms of spatial, at the regional or national level, allows
understanding and analysis of these interactions, with impact on innovation
propensity and performance of innovation activity.
However, technological competitiveness resulted from innovation based
on in-house R&D activity is an economic development moving force. An
innovative company will achieve a high profit rate, giving a signal to other
companies, including imitators who, if they have market entrance conditions,
will pursue to share profit, resulting in diminishing initial innovator advantage.
Such imitators ”spreading” at the industrial or sector level tackle technologic
development in a time interval, after which emerged effects from new
technologies upon growth will slow down. Taking this idea of Marxist origin,
Schumpeter was to note the importance of innovations diffusion, arguing that
imitators can be successful if they improve the original innovation, that is, if
they become themselves innovators. In this framework, it becomes obvious that
the technology acquisition cannot be simply assimilated with purchasing from
suppliers. Companies must have the ability to identify the appropriate
technologies they need, to assess technological options for using or their
modification and, last but by no means to least, to integrate new technologies
into production processes. With other words, companies that practice this type
of innovation must have skills to purchase and use new or substantially
improved technologies.
In fact, innovations tend to facilitate achieving other innovations in close
fields. In this way, innovation-diffusion is a creative process, in which innovation
becomes input in other innovation processes without being a passive process,
but an adaptive one. Systemic interdependence between original and induced
innovator also implies the fact that innovation processes tend to concentrate in
certain sectors resulting their development (Schumpeter, pp. 200-201).
Schumpeter regarded this dynamic, explaining thus “business cycles” length
and “long waves” in the economy.
In this framework, Vernon R. (1966) observes that industrial development
is driven by product innovation, induced by product competition on the market.
Over time, however, the products are affected by obsolescence, fact supposed to
be accompanied by a higher accent on process innovation as a consequence of
Technological Innovation: Concept, Process, Typology and Implications in the Economy
133
market competition in reducing costs. It was argued that these changes of
competitive conditions may favor the transfer of technology associated with
foreign capital flows as foreign direct investments, from one innovative country
to countries with marketing potential. In this context, the “absorption capacity”,
namely the ability to recognize, assimilate and exploit new information
becomes essential in the transfer of technology being, however, a function of
research and development expenditure previously made by firms, which
increase their capacity to exploit opportunities arising from external relations
(Cohen, Levinthal, 1990).
3. Innovation typology
Schumpeter (1934) distinguished five innovation types: new produces,
new production methods, exploitation of new markets, new ways to offer
products on the market and new ways of business organization. In his turn,
J. Schmookler (1966) differentiated “technological product” from “technological
production” by defining the first innovation type in terms of how to create or
improve products, and the last concerns how to produce them, and Pavitt (1987,
p. 9) notes that “technologies are specific to product and process innovation”.
Similarly, “product innovation” and “process innovation” terms were
used later in Oslo Manual (2005) as types of technological innovations. In this
sense, product technological innovation is the result of producing and
commercialization of new goods (products or services) or with improved
performance characteristics, while process technological innovation
corresponds to the implementation or adoption of a new or improved
production process. We can admit that most innovative companies introduce
both types of innovations in the same time, aiming price competitiveness
(especially through process innovation) or technological competitiveness
(associated with product innovation).
By definition, all innovations must contain a certain novelty degree,
whether they are technological (product or process) or non-technological
(marketing and organizational). The novelty distinguishes goods or processes as
innovations and non-innovations. In Figure 2 we present the degree of novelty
of goods (products or services) and processes recognized by the Oslo Manual in
defining innovation and also the innovation typology.
Mihaela Diaconu
134
Source: OECD (1996, p. 36).
Figure 2. Innovation typology
Products/services and processes may be “new to firm” or “new to market”
(at the regional/country or global level). The products or processes degree of
novelty is a useful tool in calculation of innovational output indicators that
incorporate data on the enterprise local, national or international market. Also,
the proportion of turnover from new to firm or new to market products of total
business turnover allows industrial or international comparisons. However, if
one considers that the new to firm products refers to the less developed firm’s
market, incorporating innovations already available on other markets,
comparing the levels of this indicator may lead to an inadequate appreciation of
the innovation performance of enterprises. We consider, therefore, that the
products or processes novelty can be highlighted more appropriate if we take
into account turnover from new to firm’s market innovations that correspond
also to new to international market innovations. In this framework, we assume
that firms that operate on international markets introduce products or processes
with a higher degree of novelty than those that activate on the local or national
level. Such a synthetic indicator of innovation output based on the enterprise
market allows also, in our opinion, the indicator comparability for different
states or regions.
INNOVATION Not innovation
Maximum Intermdiate Minimum
Alrewady in
firm
New to the
world
New to the
country/region
New to the
firm
Technological
(product
or
process)
innovation
Technologically
new
Product
Production
process
Delivery
process
Significantly
technologically
improved
Product
Production
process
Delivery
process
Other
innovation
New or
improved
Purely
organisation
Not
innovation
No significant
change, change
without novelty,
or either
creative
improvements
Produc
t
Production
process
Delivery
process
Purely
organisation
Technological (product or process) innovation Other innova tion Not innovation
Technological Innovation: Concept, Process, Typology and Implications in the Economy
135
Novelty, as a result of innovative activities, has significance in analyzing
innovation modes of enterprises. A question regarding different context of
introducing innovations appears. If, for example, an agent A introduces an
innovation for the first time and another agent B introduces the same innovation
on the market later, are both to be characterized as innovators? Following
Schumpeter, the term “innovator” should be reserved for agent A, while B is an
“imitator”. We could argue, however, that agent B can be regarded also as
being innovative, by introducing innovation in a new context for the first time if
we look novelty as Oslo Manual defines it, but admitting an “active imitation”
process, where products are made by modifying or improving existing ones. In
fact, as Kline and Rosenberg (1986) note, many innovation processes with
economic significance unfold after products or processes diffusion. Introducing
new products of processes into a certain context considerably simplifies the
adaptation process of (incremental) innovation, facilitating increasing
productivity and maintaining competitiveness.
Another similar approach of innovation typology from novelty viewpoint
refers to “incremental” (“marginal”) innovations, as a result of continuous
improvements to products and processes, or “radical” innovations based on new
concepts, leading to “technological revolutions” and to a considerable economic
impact. Schumpeter considered innovation inclusively from this perspective,
seen to be more important. We believe, however, that the economic and social
impact of cumulative incremental innovations can be at least as important if one
considers that the benefits realization from radical innovation requires
incremental improvements.
A special attention is given, however, to radical innovation in terms of its
contribution to environmental performance. Many countries consider eco-
innovation as an important factor in solving contemporary challenges, including
climatic ones, energy and natural resource security. In the same time, firms
regard eco-innovation as a potential source of competitive advantage on the
market of industrial goods and services.
Eco-innovation is a new term, referring to more favorable environmental
impact exercised through production processes or by the use of goods. The term
was for the first time used by C. Fussler and P. James in 1996 (in Eco-Driving
Innovation), referring to “new products and processes which provide customer
and business value but significantly decrease environmental impacts”, closely
linked to a variety of related terms as “environmental innovation”, “innovation
for sustainable development” or “sustainable innovation”. In the same time,
eco-innovation is associated with different concepts such as eco-efficiency
(increasing production of goods and services under natural resources and
energy low consuming conditions), with “cleaner” production (as strategic
Mihaela Diaconu
136
activity to reduce pollution and continuous waste of resources) and eco-design
(redesigning products and processes to reduce environmental impact during life
cycles).
Nevertheless, defining eco-innovation was not lacking difficulties for the
fact that products supposed to be friendly to environment may determine, by
their excessive usage, a growth of resources consumption, recording “rebound
effect”. Consequently, in defining eco- innovation European Commission
(Project MEI, 2005) includes all innovation forms that diminish the impact
upon environment and/or optimize resource consumption face to relevant
alternatives during activities life cycles. Thereby, eco-innovation (i) reduces
environmental risks, pollution and resources consumption; (ii) refers to goods
(products and services), manufacturing processes or business models; (iii)
includes, with no limitations, the green technologies and without limiting at
these ones and without an environmental origin or contain technological
components; (iv) may be radical and systemic (by replacing polluting materials
with the friendly to environment ones) or incremental (by a lower consumption
of resources when using products).
In the light of the same features, eco-innovation includes “the creation or
implementation of goods (products or services), processes, marketing or
organizational methods that – with or no intention – result to environmental
improvements face to relevant alternatives” (OECD, 2009, p. 9). However,
according to Oslo Manual, firms can eco-innnovate/innovate, also through
acquiring cleaner technologies and their implementation in production.
Technological eco-innovations correspond to products or processes
incorporating technological progress that contribute to improving
environmental conditions and can be analyzed using their mechanisms and
impact they create. Thus, in terms of mechanisms, technological eco-
innovations are: (i) small and gradual changes brought to products or processes;
(ii) re-designing, by operating significant changes brought to the existing
products or processes; (iii) introducing alternatives (products or processes) with
the same functional characteristics but which operate as replacements of
existing products; (iv) creating, designing and introducing of completely new
products or processes. In principle, the environmental benefits of new products
or production processes or existing alternatives are superior to those resulting
from modification or re-designing of existing ones. In its turn, the impact of
technological eco-innovations may be curative, by the use of technologies that
allow polluting material elimination already released into the environment or a
preventive one.
We admit that “in general, advanced technologies tend to be focused
mainly on eco-innovation efforts. This is a typical feature associated with new
Technological Innovation: Concept, Process, Typology and Implications in the Economy
137
products or processes, with modifying or re-designing their main mechanisms”
(OECD, 2009, p. 16). In the same framework, we adhere to the opinion that
“often, economic investments and environmental protection “go hand in hand”,
such convergence being the ideal situation” (Zaman, Zenovic, 2007, p. 137).
4. Technological innovation implications in the economy
Innovative capacity is a key determinant of economic competitiveness of
nations. In the same time, innovation – the engine of economic progress and
welfare – is an instrument to solve current global challenges related to
environment and health domain. We treat here sustainable development of
organizations as the result of their ability to generate new ideas in supporting
increasing production, employment and environmental protection.
The implications of innovation in production growth has attracted the
interest of economists, at least since Adam Smith (1776), not only by
productivity gains from specialization through labor division, technological
improvements brought to processes and capital goods but, recognizing the role
exercised by R&D activities or technology transfer in the economy.
Technological progress was introduced later by R. Solow in 1957 in the
production growth models. In the early neoclassical models, production, Q, is
expressed in terms of factors that lead to its obtaining, physical capital, K, and
labor, L, without including technological progress:
Q = f (K, L) (1)
Solow, however, observed that not only physical capital and labor factor
have bearing on the size of production, another factor, A, technological
progress determines also capital and labor productivity growth, so its inclusion
as a separate factor, A, follows:
Q = A f (K, L) (2)
However, technological progress has been admitted to be exogenous until
P. Romer (1986) approached it as a result of explicit input in innovation
processes: research and development expenses, R&D, and highly skilled human
capital, HC, according to the following expression:
Q = A f (R&D, HC) (3)
Most empirical research has been allotted to relation between production,
Q, and factors R&D and HC that may be substituted by technological progress,
like in the expression below:
Q = f (K, L, R&D, HC) (4)
The expression (4) is used in empirical analysis to estimate the impact of
research investment on the total factor productivity growth accepting that
research and development activities are a source of innovation. In using the
Mihaela Diaconu
138
above expression, however, sources of knowledge leading to innovation must
be taken into account, that may come not only as a result of research
expenditures financed from enterprises resources, but also those from the
government support, collaboration contracts with other companies or
technology acquisitions. We consider also that the expression (4) can be used in
assessing the performance of innovation activities focused on research and
development; for an innovation mode based on imported knowledge (through
information and technology), inclusively as a result of foreign direct
investment, it should incorporate these factors in the model in predicting output
growth.
Industrial dynamics models are based on expression (4) in explaining
long-term development variations, using arguments of Schumpeterian origin: (i)
technological competition is the main form of market competition; (ii)
innovation and “new combinations” of resources determine new business
opportunities and changing. For instance, V. Posner (1961) explains the
difference of economic development rate between countries as being due to
technological progress resulted from two sources: from innovation that
generates these differences, and from imitation that tends to decrease them. His
work was the basis for subsequent contributions in identifying the
“technological gap” from so-called “north-south” approaches to explain
differences in economic development of states, arguing the need for sustained
efforts towards innovation in order to be maintained their competitiveness in
the global hierarchy. Fagerberg is situated on the same position in reference to
the technological gap and income reduction among states, which may be
possible both through imitation, but especially involving innovation, identifying
three factors affecting economic development rate of countries: innovation
(based on research and development), imitation and technology diffusion
efforts. The analysis suggests that reducing disparities between states becomes
possible mainly through innovation, representing the most important factor in
explaining differences in growth between countries (Fagerberg, 1996).
If innovation is seen to be a major determinant of production growth, a
lively debate in the literature concerns the effects of technological innovation
on employment. Thus, product innovation is considered to present effects in
terms of improving the quality and variety of products, creating demand on the
new markets, leading to production and income growth and to employment;
also, new products reduce cost as a consequence of process innovation (Pianta,
2000). Process innovation – associated with reducing costs (capital and labor) –
may determine total factor productivity growth as product innovation does but,
inclusively through reducing employment and lowering prices (Fagerberg et al.,
2006). It is argued also that, as long as process innovation leads to increasing
Technological Innovation: Concept, Process, Typology and Implications in the Economy
139
products quality or lowering prices, increased demand may determine
employment. According to some authors, the consequences in terms of
employment tend to be positive in machinery production sectors or negative
(when demand compensation is not enough) in industries that made new
investments (Edquist, Hommen, McKelvey, 2001).
Other studies show that companies with innovative activity mainly
technological (product and process) recorded a higher profit growth rate than
other firms, so that the impact on employment is positive, regardless of
industry, size or other characteristics of firms (Van Reenen, 1997). However,
enterprise-level studies can not capture whether the results of innovation,
including enhancing employment, are not recorded to the detriment of
competitors or the net effect on the aggregate industry level. Industry level
analysis can better meet the requirements for assessing direct and indirect
effects of innovation (in terms of changes of output or employment, which
firms with more intense innovative activity are in a competitive advantage over
the firms less engaged in innovation) and the indicator dynamics as a result of
lowering prices driven by innovation activity. This creates the possibility of
comparing innovation indicators that may reflect the demand dynamics across
sectors, allowing international comparisons.
Addressed differently, by types of technological innovation, it is shown
that the impact of product innovation on employment is positive in industry
(especially in manufacturing and services), while process innovation is
associated with jobs losses. The total effect of innovation related efforts varies
from one period or one country to another but, in general, increasing demand
stimulates innovation in industry, particularly product innovation, with positive
impact on employment (Pianta, 2006). Other empirical studies based on
questionnaires showed also that, in Europe, employment was affected by the
dynamics of demand and by the type of technological innovation and, in the
same time, a higher R&D intensity showed an adversely impact on employ-
ment, suggesting replacing labor with machineries to be predominant. In the
context of a modest industrial development in Europe in the 1990s, countries
with emphasis on process innovation have registered a negative impact on
employment. This effect was due to the fact that increasing international
competition has led some countries in restructuring processes and process
innovations, resulting labor cost reduction effects, while product innovation had
a positive impact on output and employment (Antonucci, Pianta, 2002).
A more comprehensive image of innovation incidence on employment
may be provided by the macroeconomic framework, which integrates all the
indirect effects of technological change on employment. Such an approach is
concerned, typically, about the “compensation mechanisms”, the most
Mihaela Diaconu
140
important being by reducing prices, usually associated with introducing of new
technologies. According to the “compensation theory” (named in this way by
K. Marx in Capital, 1961), market forces should offset the initial impact
resulted in the reduction of jobs through process innovation. Hence, it may be
distinguished the following compensation mechanisms:
“via reducing prices”; if process innovations determine jobs losses,
they lead, on the other hand, to reducing the unit costs of production on
an efficient market. The latter stimulates products demand, leading to
increasing production and employment. The result is conditioned,
however, by the decisions of firms to transfer the productivity gains in
lower prices as results of innovation (Sylos, 1969);
“via new equipment” in acceptance that if process innovations release
labor in technology driven sectors they create other jobs in producing
equipment sectors;
“via new investments”, framework in which additional profits
registered as a result of innovation can be used to finance either new
investments to increase production capacity and employment or
replacement investments and labor savings;
“via reducing wages” which is, typically, a neoclassical point of view.
The initiation of technological unemployment contributes to
decreasing wages that later result in increasing the capacity of firms to
employ. This mechanism is based, however, on the assumption that
that firms can perform any combination of capital and labor, efficient
markets, flexible wages and employment;
“via new products” resulting from product innovation, which is
stimulatory for setting up of economic entities that can create new
jobs.
Aggregate level studies performed by W. Baumol and E. Wolff (1998) on
the US case, by analyzing five innovation indicators related to the unemploy-
ment structure and changes between 1950 to 1995, led to the conclusion that
through innovation activity is recorded a higher “natural rate of unemployment”
and longer periods of unemployment. R. Lavard and S. Nickell (1985), on the
other hand, have shown that compensation mechanisms may reduce unemploy-
ment in the UK. In turn, M. Vivarelli (1995) developed a simultaneous
equations model to test the compensation mechanisms in the US and Italy,
finding that the price reduction is more efficient in determining employment
growth in the US, but not in Italy. This approach was subsequently considered
by R. Simonetti and K. Tancioni (2002), who developed a model for an open
economy taking into account the UK and Italy cases, finding a differentiated
impact of the compensation mechanism between the two countries.
Technological Innovation: Concept, Process, Typology and Implications in the Economy
141
While this approach is broadest, explaining the impact of technological
change on employment in the national economy, the complexity of building
such a model, problems encountered in specifying relations between variables
and data availability constrains reduce its feasibility. Taken together, these
studies show a differentiated impact of product innovation from process
innovation on employment, depending on countries macroeconomic conditions
and institutional factors. We conclude that, although the compensation
mechanisms are functional, re-balancing mentioned above can not be ex-ante
assumed, but we admit that the impact of innovation on employment is mostly,
in general, a positive one.
Processes of efficient combination of human, material, financial,
information resources and new value and welfare creation through innovation
gain a growing interest, especially in recent years, in the context of finding
irreversible reduction of natural resources potential as a result of human
activity. In fact, many studies (since series of reports by the Club of Rome)
“showed that our optimization criteria are inconsistent with economic growth
based on natural resources” (Dinga, 2009, p. 40). It also shown that the
processes of industrial processing and the use of goods, including in households
were responsible for one third of the natural resources and energy consumption
and carbon dioxide emissions achieved globally by the year 2004 (OECD,
2009), which imposed a reconsideration of manufacturing processes and
producing new products more friendly to environment.
Environmental benefits through innovation and therefore to humanity
require to reduce resource consumption and/or emissions of pollutants and
thereby avoiding environmental damage, maintaining quality of life, access to
natural resources of next generations and preservation of intergenerational
economic potential. At the same time, manufacturing of new products or
implementation of new friendly to environment processes in a given sector
involves development of other sectors, leading to sustainable economic
development. Thus, innovation is seen as the engine of sustainable development
in the last decade.
So far, manufacturing industries have adopted different measures in this
regard, inclusively under the regulation pressure, toward a greater responsibility
of companies and home users regarding their impact on the environment. Also
it can be highlighted the increasing interest of firms to voluntary improve
business environmental performance, aiming to obtain profit from eco-
innovation activities oriented on markets characterized by increasing demand.
Gradual shift from pollution control to more effective integrated solutions
Mihaela Diaconu
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through eco-innovation can provide a relatively low environmental impact;
however, positive effects can be obtained while growth rates of emissions and
resource consumption are lower than production growth rate, and also
decreasing in absolute terms.
5. Conclusions
Undoubtedly, the role of innovation in economic and social life results
from the function of innovation regarding introducing newness and variety in
the human activity. In the absence of innovation processes, the economy would
enter a “stationary stage”, characterized by modest growth or no growth. As a
result, innovation is crucial for sustainable (long term) economic development.
The intensity of innovation is an explanatory factor of differences in
economic performance between companies, regions and countries. Innovative
organizations which record successes in innovation activities are prosperous at
the expense of the more modest competitors involved in innovation. Catching-
up the countries or regions situated in a innovation leaders position involves
efforts to enhance innovative activity, both through research and development
and diffusion in the manifested interest to increase production, employment and
environmental protection, justifying the concern of many states in stimulating
innovation.
Innovation capacity of enterprises is a function of their ability to develop
coherent technological strategies, to acquire and absorb technologies, to form
and exploit linkages with third parties and to develop other useful skills for
innovation. From this perspective, at the highest level are firms that absorb
cutting-edge technologies and innovate in high-tech industries and at the lowest
level are firms without technological capacity. Non-R&D dimensions of
technological development are, in particular, beneficial for enterprises that are
not engaged in R&D, are far away from the technological frontier, and do not
require cutting-edge R&D to improve their competitive position. For these
firms, we believe that assistance in building skills related to acquisition and the
use of technologies may be more relevant than additional public R&D funding.
A different approach from this point of view requires eco-innovation domain,
where radical innovations focused on R&D register the highest efficiency in the
environmental protection and are based on R&D activities, in which higher
costs are involved on a longer time horizon, increased uncertainty in obtaining
incomes and low supply of financial resources.
The studies orientation on the input R&D costs at the enterprise level is
due to the key role exercised by research and development as a source of
invention in the “linear model” of innovation. Firms do not innovate, however,
Technological Innovation: Concept, Process, Typology and Implications in the Economy
143
in isolation but through a continuous interaction with the operating
environment, so that “systemic model” allows a better understanding of the role
played by the actors involved into innovation processes, the effects obtainable
by government policy and possible options to increase the proportion of
innovative enterprises of total enterprises.
The impact exercised by the different types of innovations and their
determinants have received a particular attention in recent years. Studies in
innovation activity, especially based on research and development at the
enterprise level, have been intensified in the last two decades in analyzing
innovation indicators, in order to be identified innovation modes and
performance in different sectors that are indispensable for innovation policies.
Emphasizing intensity and effects resulting from the diffusion of knowledge,
also an essential aspect of innovation, for both R&D and non-R&D performing
firms, has not been so widely debated. These include the acquisition of
knowledge that does not require interaction with the source (purchase of capital
goods or services, including the licensing of intellectual property) and the
acquisition of knowledge that is available from the source (scientific
publications or through attendance at trade fairs) or the acquisition of
knowledge obtained directly from other entities through collaboration.
However, increasing production, employment and environmental protection are
the result both of R&D applications and diffusion of new technologies (R&D or
non-R&D involved).
Acknowledgements
This work was supported by the project; “Post-Doctoral Studies in Economics:
training program for elite researchers – SPODE”, contract no. POSTDRU/
89/1.5/S/61755, project financed by the European Social Fund through the
Development of Human Resources Operational Program 2007-2013.
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