Financial and Non-Financial Barriers to Innovation and the Degree of Radicalness

The aim of this study is to analyse the effects of barriers to innovation on firms’ propensity to engage in radical and incremental innovations. We look at innovative and potentially innovative firms and estimate the effect of three types of barriers—financial, knowledge and competition—on the propensity to radical innovation new to the world, radical innovation new to the market and incremental innovation. An empirical study has been performed, drawing on data collected from the German Mannheim Innovation Panel covering the period from 2014 to 2016. Empirical results reveal heterogeneous effects of barriers depending on the degree of radicalness. In particular, knowledge and competition barriers are an impediment to radical innovation, whereas financial and knowledge barriers reduce a probability of incremental innovation. Based on the findings, we discuss policy recommendations for mitigating barriers to innovation conditional on the degree of radicalness.