Externalities of openness in innovation

Stephen Roper, Priit Vahter, James H. Love

Research output: Contribution to journalArticlepeer-review


Discussion of open innovation has typically stressed the benefits to the individual enterprise from boundary-spanning linkages and improved internal knowledge sharing. In this paper we explore the potential for wider benefits from openness in innovation and argue that openness may itself generate positive externalities by enabling improved knowledge diffusion. The potential for these (positive) externalities suggests a divergence between the private and social returns to openness and the potential for a sub-optimal level of openness where this is determined purely by firms' private returns. Our analysis is based on Irish plant-level panel data from manufacturing industry over the period 1994-2008. Based on instrumental variables regression models our results suggest that externalities of openness in innovation are significant and that they are positively associated with firms' innovation performance. We find that these externality effects are unlikely to work through their effect on the spread of open innovation practices. Instead, they appear to positively influence innovation outputs by either increasing knowledge diffusion or strengthening competition. Our evidence on the significance of externalities from openness in innovation provides a rationale for public policy aimed at promoting open innovation practices among firms.
Original languageEnglish
Pages (from-to)1544-1554
Number of pages11
JournalResearch policy
Issue number9
Early online date19 Jun 2013
Publication statusPublished - Nov 2013

Bibliographical note

This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The research in this paper was funded by the ESRC under award RES-062-23-2767


  • knowledge externalities
  • open innovation
  • externalities of openness
  • Ireland


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