The impact of the economic crisis on innovation: Evidence from Europe

• Economic crises cause companies to reduce their investment in innovation.
• We compare drivers of innovation before and during the crisis using a survey.
• We apply the creative destruction and technological accumulation hypotheses.
• Before the crisis incumbent enterprises expand their innovation investment.
• After the crisis a few small enterprises and new entrants invest in innovation.

Economic crises cause companies to reduce their investment, including investment in innovation where returns are uncertain and long-term. This has been confirmed by the 2008 financial crisis, which has substantially reduced the willingness of firms to invest in innovation. However, the reduction in investment has not been uniform across companies and a few even increased their innovation expenditures. Through the analysis of a fresh European Survey, this paper compares drivers of innovation investment before, during and following on from the crisis, applying the Schumpeterian hypotheses of creative destruction and technological accumulation. Before the crisis, incumbent enterprises are more likely to expand their innovation investment, while after the crisis a few, small enterprises and new entrants are ready to “swim against the stream” by expanding their innovative related expenditures.