How Firms Innovate: Learning from Some Recent Advances in the Economic Literature

This paper presents an overview of the recent literature on innovation and – in particular – regional innovation systems. The analysis focuses on innovation systems, considering first the institutional environment (macroinstitutions, public research infrastructures, financial institutions...) and the level at which it is relevant for innovation activities: local systems of innovation are here analysed, with a particular attention to the crucial mechanism of externalities creation. Among the actors of the innovative process, we choose to focus on companies, analysing firms’ innovative behaviour in the light of the systemic approach we describe in the first part of the paper, and of recent advances of the theory of the firm. Recent trends in both micro and macro-economic literature have strongly focused on innovation in order to explain economic growth. At a macro-level, there is discussion about how to characterise innovation, with the ‘new growth theory’ opposed to alternative approaches emphasising innovation as a disequilibrium process; but the importance of innovation as a major source of economic growth is well recognised. At a micro level as well, innovative behaviours of firms have become of a central interest to understand their evolution. But this has turned a major source of trouble for economic measurement. At the macro level, it is very difficult to find robust conclusions on the importance, characteristics and measures of externalities. At the micro level, innovation is still a confusing concept both for the actors (the firms) and the spectators (economists, statisticians...). The aim of this paper is to provide some guidelines in order to make clearer the challenge of characterizing innovation at the micro and “meso” levels, i.e. both innovation as a company-based initiative and innovation as an institutionalanchored process.