Effects of User’s Cooperation and Location on Innovation Activity of Firms: an Input-output Approach

The present study analyses the profile of firms cooperating with users and estimates the effect of this cooperation on firms’ innovation activities. This issue is particular novel and important as users provide information that will be very useful for generating new products and making the innovation process more efficient. The findings confirm that cooperation with users is a tool for progress and development as it has a positive influence on both input and output of firms’ innovation process. This paper makes three important contributions to the literature. First, we analyse the effect of cooperation with users on how firms distribute their R&D expenditures (basic research, applied research and technological development) in order to make clear how this tool can affect the different strategies for generating knowledge. Second, we also study the impact of this kind of cooperation on the degree of novelty of new products, with the aim of explaining how it affects the productivity of R&D activities. Third, to estimate these effects, the study analyses these relationships and explore the role of proximity in the cooperation with users taking into account the location of this agent (domestic versus international users). Results confirm that cooperation with users increases investments in activities that generate knowledge with a specific practical objective and which are near to firms’ technological domain (applied research and technological development). Independently of user’s location, firms increase their investment in technological development to act quickly in the market and to obtain profits. The study also concludes that cooperation with users has positive effects on innovation outputs and its degree of novelty (radical versus incremental innovations). Nonetheless, these effects are different according to user’s location. Cooperation with domestic users stimulates the sales of radical innovations and cooperation with international users increase sales of incremental innovations.