Using novel data on European firms, this paper investigates the relationship between business groups and innovation … group affiliation is particularly important for innovation in industries that rely more on external funding and in groups … knowledge spillovers are not the main driver of innovation in business groups because firms affiliated with the same group do …

It is shown that spillovers can enhance private returns to innovation if they feed back into the dynamic research of …” knowledge is reabsorbed by its inventor. A simple model of sequential innovation with dynamic spillovers is developed, which …