Is adversity the mother of innovation? International evidence at the firm level

This study examines the impact of external obstacles, including utility disruptions and competitive pressures, on firms' innovative activities. External obstacles can hamper innovation when innovation production is adversely impacted (supply side effect), while they can spur innovation when they create new demand (market) opportunities (demand side effect). Our results, using data across firms in 132 nations, support the demand side effect. Specifically, utility disruptions involving internet, power, and water disruptions spur innovation introductions, as do the competitive pressures from the informal sector and public sector firms. On the other hand, consistent with the extant theory, greater market competition lowers innovation introductions - a business stealing effect. The findings mostly hold across process and product innovation, the developing nations subsample, and the subset of large firms.