Path and past dependence of firm innovation

This study examines persistence of product, process, and organizational innovations for a large sample of German firms over the time span from 2002 to 2008. Descriptive analyses using transition probability matrices show pronounced patterns of persistence for all three types of innovation. State dependence effects vanish for process and organizational innovations once we control for unobserved heterogeneity and endogenize initial conditions (Wooldridge approach). We conclude that product innovation processes exhibit significant path dependence; process and organizational innovations, in contrast, are primarily shaped by time-invariant and unobserved firm characteristics. In addition, we find evidence of intertemporal complementarities among the various innovation types.