The mechanism of innovation spill-over across sub-layers in the ICT industry

While there has been a study regarding the mechanism of innovation spillover within an information and communication technology (ICT) ecosystem, to the best of our knowledge, there has been no research on the mechanism of innovation spillover between sublayers. To fill this gap, this study aimed to disentangle the empirical question of how innovation spills over between sublayers. We classified the ICT industry into three layers, Content, Goods, and Service, and collected financial data from KISVALUE over the last 18 years (2000–2017). Stochastic frontier and meta-frontier analysis were used to estimate the annual production function of each layer and the meta-production functions that encompass each sublayer’s frontiers. Based on the efficiency calculations, we introduced two types of instrumental variables: (1) each industry’s single radical innovation and (2) the effect of an industry’s incremental innovation, then regressed the firms’ efficiency on other industries’ radical and incremental innovation. The results showed that innovation from one sublayer affects the other sublayers’ productivity gains, thus triggering other types of innovation and causing reciprocal productivity gains in the other sublayers of the ICT ecosystem. This study sheds light on the mechanism of innovation spillover across sublayers in the ICT ecosystem, and the implications of the findings are discussed.