Business optimism and the innovation-profitability nexus: Introducing the COVID-19 adaptable capacity framework

In this paper we develop a novel multi-stage integrative framework for technology foresight-planning. This framework integrates econometric analysis and a technology foresight procedure to predict: (i) the most COVID-19 resilient industries at the national level; and (ii) the most adversely affected industries (due to prior investment in innovation) that requires public support. Our econometric results show that the pandemic has induced a ‘double-edge sword’ effect of innovation on firm’s COVID-19 adaptable capacity (CAC). Costly innovation undertaken before the pandemic can be bad for firms if it compounds the problem of declining post-pandemic outbreak profit and optimism. Contrarily, firm level innovation improves firm’s CAC as the prior innovators’ profitability are found to have above-even odds of rebounding quickly post-pandemic outbreak. Our empirical analysis focuses mostly on developing economies, where firms are most likely implementing only incremental (non-frontier) innovation and thus our results should be generalized with caution.