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The Handbook of Technology and Innovation Management by Scott Shane

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14.3. The Innovation Paradox

When it came to empirical validation of the model of the knowledge production function, it became clear that measurement issues played a major role. The state of knowledge regarding innovation and technological change has generally been shaped by the nature of the data that were available to scholars for analyses. Such data have always been incomplete and, at best, represented only a proxy measure reflecting some aspect of the process of technological change. Simon Kuznets (1962) observed that the greatest obstacle to understanding the economic role of technological change was a clear inability of scholars to measure it. More recently, Cohen and Levin (1989, p. 146) warned

A fundamental problem in the study of innovation and technical change in industry is the absence of satisfactory measures of new knowledge and its contribution to technological progress. There exists no measure of innovation that permits readily interpretable cross-industry comparisons.

Measures of technological change have typically involved one of the three major aspects of the innovative process:

  • a measure of the inputs into the innovative process, such as R&D expenditures, or else the share of the labor force accounted for by employees involved in R&D activities;

  • an intermediate output, such as the number of inventions that have been patented;

  • a direct measure of innovative output.

These three levels of measuring technological change have not been developed and analyzed simultaneously, ...

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