Networks and Innovation: The Role of Social Assets in Explaining Firms' Innovative Capacity

The claim of a positive association between a firm's social assets and its innovative capacity is a widely debated topic in the literature. Although controversial, such an argument has informed recent innovation policy across Germany, increasingly directed to the cluster formation. In the light of the growing attention and financial efforts that cluster-based innovation policies are receiving, it is worth answering two main questions. First, are firms with a relatively high level of social capital likely to be more innovative? Secondly, do companies pursuing innovation in partnership innovate more? This paper empirically answers these questions by exploring a cross-sectoral sample of 248 firms based in the Jena region. On the one hand, the extent to which a firm is integrated in its community life does not contribute to an explanation of its innovative performance. On the other hand, directed cooperation with the specific goal of innovating shows a positive impact on innovative performance. However, the correlation between the extent of the network of co-innovators and firms' innovative capacity presents an inverted U-shaped relation: there is a threshold in the number of co-innovators justified by the costs of innovating by interacting. A policy lesson can be drawn from these findings: cluster-based policies are to be treated with caution as firms face costs of networking and not merely benefits.