An unexpected external shock and enterprises’ innovation performance

Abstract

Previous research has shown that competition can affect innovation, but we do not know if an unexpected external economic shock, as it decreases demand that increases competition, also affects innovation. Responding to this knowledge gap, we study Norwegian enterprises before and after the sudden and unexpected price decline of crude oil by the midyear of 2014. In some regions, due to their dependency on the petroleum sector, it strongly affected enterprises operating across many industries, while other regions were practically unaffected. Among enterprises that were innovative before the decline, we find a borderline significant inverted U-relationship between regional oil dependency before the decline and enterprises’ product innovation performance after the decline. Among enterprises that were not innovative before the decline, we find a robust significant positive linear relationship. The results can be a function of increased competition but particularly concerning the latter finding also better access to resources released in affected regions.