INTRODUCTION

Measuring innovative output is difficult since innovations can differ in many different dimensions. More importantly, economic growth results from innovations of different types. Economic growth clearly results from pathbreaking innovations, such as the computer, lasers, or new chemical entities. But innovations that are not at the frontier can also substantially contribute to growth. Economic growth can result when a firm introduces new products or processes that have already been adopted in other countries but that need to be adapted to special national circumstances. It can occur when firms adopt processes from other industries. Both of these imitative types of innovations involve substantial novelty. Finally, economic growth occurs from more imitative innovations — when firms succeed in improving the products of those who pioneered a new product or process but who could not develop it quickly enough. Economic progress is also enhanced by competitive pressures that ensure that good ideas become good commercial products or processes. Sometimes these changes may simply modify the product to better satisfy consumer demands. At other times, they may involve superior production processes that lower production costs and reduce consumer prices.

Innovation is, therefore, best thought of as a continuous process, whose characteristics often change over the length of the product life cycle. Gort and Klepper (1982) delineated four phases of the product life cycle. In the first, new products emerge and a small number of firms work to develop a commercial product.