Are there diminishing returns to R&D?

Semi-endogenous models and, to some extent, also Schumpeterian models are based on the assumption of diminishing returns to R&D. This paper shows that the null hypothesis of constant returns to R&D cannot be rejected for the OECD countries.     

Is R&D always growth-enhancing? Empirical evidence from the EU countries

This study provides empirical evidence regarding the effects of R&D on economic growth in a panel of 28 European Union (EU) countries over the period 1997–2014. In particular, we investigate whether the impact of business and government R&D stocks on economic growth depends on the country’s distance to the world technology frontier. The main findings are that in the EU (i) there is positive, statistically significant business R&D stock–economic growth nexus in countries that are relatively close to the frontier and (ii) no statistically significant relationship was found to exist between government R&D stock and economic growth. From the policy perspective, the results suggest that designing proper national policies that allow switching from investment-based to innovation-based strategies at appropriate moments may be far more important than a simple call for increase in R&D expenditures and setting common numerical targets for all EU-member states.     

The role of diminishing returns in neo-Schumpeterian growth theory

Summary. This paper generalizes Segerstrom [5], a dynamic general equilibrium model of endogenous growth through quality improvements in which innovation and imitation are modeled as the outcomes of research and development (R&D) races. Specific factors introduced into the technologies of both R&D activities achieve diminishing returns to scale in R&D. The comparative-static results of subsidies to R&D activities depend on the degree of diminishing returns to scale in R&D. When there is (is not) a sufficient degree of diminishing returns to R&D, a subsidy to innovative activity increases (decreases) innovative activity. Received: July 8, 1994; revised version: June 9, 1997     

Research and development and labour productivity: do high-tech firms exhibit labour- or capital-saving technical change?

Employment and output in the advanced technology sectors have generally exhibited above-average growth for more than two decades. While this industry accounts for a relatively small share of total employment, the majority of private sector research and development (R&D) expenditures in the US is concentrated within seven sub-sectors. However, little attention has been paid as to whether high-tech productivity exhibits Hicksian capital or labour ‘savings’ bias or tendency to displace either factor input over time. Biased technical change can occur as economies transition between growth regimes. An augmented production function is employed to analyse the additional impact of R&D activity on firm-level labour productivity. A panel data set comprised of high-tech firms located across the advanced economies, China and India from 1990 to 2013 is used in the analysis. Labour-saving technical change was present across the advanced technology sectors and most countries. The expanded models of labour productivity that used fixed effects with lagged regressors confirmed the prior results as well as finding that R&D per employee, relative R&D intensity and firm market share contribute to firm-level labour productivity growth across countries and sectors. Additional support was found for diminishing returns to scale but not for R&D spillover effects.     

Determinants of TFP growth: A close look at industries driving the EU–US TFP gap

This paper explores the determinants of the EU–US TFP growth gap using EU KLEMS. As found in previous analyses, TFP growth appears to be driven by catching-up phenomena associated with the gradual adoption of new technologies. TFP growth is also significantly driven by developments at the “technological frontier”, especially since the mid-1990s. Industries with higher R&D expenditures and higher adoption rates for ICT-intensive technologies appear to exhibit higher TFP growth rates, whilst human capital has mostly a significant effect across countries. Regarding determinants in industries relevant for the different TFP performance of the EU versus the US, ICT-producing industries appear to benefit from R&D in terms of stronger spillovers from TFP gains at the frontier, network utilities are strongly affected by product market regulations, whilst the retail and wholesale trade industry is significantly influenced by consumption dynamics which permit a better exploitation of scale economies.     

International spillovers of R&D and marginal social returns

This study analyzes marginal social and private returns of R&D investment through the impact of international spillovers of R&D stocks. We compare the marginal social with marginal private returns using data of 27 OECD and EU countries from 1995 to 2008. We consider two channels of R&D spillovers: embodied in trade flows and disembodied by bilateral technological proximity. We find that marginal social returns on R&D are much larger than the marginal private returns for R&D‐intensive countries, in the embodied spillover channel. We also find that the embodied spillover channel through import flows is more important than the disembodied channel.     

International,intersectoral, or unobservable? Measuring R&D spillovers under weak and strong cross-sectional dependence

In the theoretical and empirical growth literature, private and social returns to R&D have been identified as the key drivers of productivity gains and economic development. However, recently the debate on the relative importance of private vis-à-vis social returns has been reinforced by contributions in two emerging fields of the applied econometric literature, namely spatial panel modeling and the common factor approach, which stress the role of cross-sectional dependence as a source for a potential estimation bias linked to the measurement of returns to R&D. In this paper, we account for these methodical advances when estimating sectoral knowledge production functions for OECD countries under weak and strong cross-sectional dependence. By doing so, we are able to uncover technology- and trade-related R&D spillover channels associated with social returns to R&D, while effectively controlling for other types of productivity spillovers and latent macroeconomic shocks. Our results highlight the role played by international-intersectoral R&D spillovers for the social rate of return to R&D, while we get limited evidence for private returns to R&D once cross-sectional dependence is properly accounted for.     

Impact of firm size and industry type on R&D efficiency throughout innovation and commercialisation stages: evidence from Korean manufacturing firms

Technological innovation through R&D is a critical element in enhancing and fostering firm performance. In particular, measurement of R&D efficiency throughout the innovation and commercialisation stages is important. However, almost of R&D efficiency-related studies assumed that R&D is a single stage. This study aims at analysing relative efficiency scores throughout the stages of the R&D process using a two-stage data envelopment analysis (DEA) model with a sample of 1039 Korean manufacturing firms. Based on our preliminary results, this study was extended by comparing subsample groups categorised by firm size and industry type. The key findings include: (1) firms show imbalanced R&D efficiency throughout the two stages and (2) R&D efficiency is different by firm size and industry type. The empirical results and findings may assist policy- and decision-makers to enhance R&D efficiency at the firm level. Moreover, introduction of the two-stage DEA model and comparative analysis methods to firm-level data contributes to scholars.     

Into thin air: using a quantile regression approach to explore the relationship between R&D and innovation

Applying quantile regression to 760 Finnish firms, we show that the relationship between R&D and firm performance is less straight forward than so far assumed. OLS regression analysis fails to capture the effect of R&D expenditure at different locations on the performance distribution. We reveal that R&D matters, especially on the medium quantiles, while regressing against the upper quantiles of the economic gains from innovation distribution exhibit decreasing returns scale in R&D. Our results confirm that Gaussian statistics fail to capture the most interesting part of the distribution – namely the extreme observations located in the tails.     

Institutions and the R&D of GM-crops

This paper analyzes how different institutional structures shape the research and development (R&D) of genetically modified crops (GM-crops). Whether this R&D is conducted within companies, cooperatives or public research organizations (both publicly and privately funded R&D) is expected to influence the type of crops and traits that are developed and therefore the effects on society and ecosystems that potentially could follow from the use of GM-crops. This issue is analyzed empirically by statistical analysis of 1323 notifications for field trials with GM-crops that have been submitted under two EU Directives in seven European countries. The results show that the type of R&D organization influences the traits and crops that are developed. Companies are more likely to submit notifications that concern GM-crops that secure the potential for profit than are other types of R&D organizations, while R&D organizations that are purely publicly funded are more likely to submit notifications that only concern biosafety research than are cooperatives and companies. Consideration of the environment, food safety and food security might justify institutional reforms of R&D of GM-crops. This might include increased public funding combined with changes in intellectual property rights.     

The effect of risk-sharing government subsidy on corporate R&D investment: Empirical evidence from Korea

Despite the wide belief that the high social rates of returns to R&D investment justify government subsidy policy in advanced countries, there are only limited studies about whether the R&D subsidy as a means of risk-sharing stimulates R&D investment of small and medium sized enterprises (SMEs) in developing countries. This paper empirically investigates the issue, using a unique data set on government subsidy for new technology development of Korean manufacturing firms, listed and non-listed, for the period from 2000 to 2007. The paper employs the DID estimation procedure and controls for simultaneity of the subsidy for new technology development using 2SLS and two step Tobit procedure. Our empirical results show that there is no solid evidence for crowding-out effects of the government subsidy. These results suggest that government subsidies could help SMEs to overcome the barriers to risky R&D projects through sharing R&D failure risk with government and by reducing capital costs to undertake new technology development projects, and thus the subsidy policy for new technology development seems to be partly successful in promoting the R&D investment of the Korean SMEs.     

Prediction of financial distress for multinational corporations: Panel estimations across countries

This research predicts ex-ante financial distress and analyses the link between financial distress, performance, employment, `and research and development (R&D) investment in the case of multinational companies (MNCs). The conditional logit and hazard models are employed to predict financial distress, while a conditional mixed process model is employed to obtain consistent and efficient estimates. Financial distress generates contractions in performance, employment, and R&D investment. Hedging against risk mitigates the effect of financial distress on R&D. Our findings vary across countries, for example, we find MNCs in Canada, Israel and the U.S. benefit from hedging against risk. The findings also indicate that ex-ante financial distress is detrimental to employment for Canada, the U.K., the Netherlands and the U.S. The findings indicate the MNCs play different roles across countries in contributing jobs, investment in R&D during the distress period.     

Renewable energy innovations in Europe: a dynamic panel data approach

We investigate the determinants of renewable energy R&D intensity and the impact of renewable energy innovations on firm performance, using several dynamic panel data models. We estimate these models using a large data set of European firms from 19 different countries, with some patenting activity in areas related to renewable energies during the 1987 to 2007 period. Our results confirm our priors on the determinants of the rapid development of renewable energy R&D intensity during the past decades. Additionally, we find evidence that renewable patent intensity has a significant dynamic impact on the stock market value of firms.     

Too little or too much R&D?

According to the first generation models of endogenous growth based on expanding product variety, the market economy unambiguously generates too little R&D. Later, by disentangling returns to specialization from the market power parameter, it was shown that with sufficiently low returns to specialization too much R&D can occur. The present paper takes a step further, disentangling the market power parameter from the capital share in final output. At a theoretical level this helps finding too much R&D as well. On the other hand, in view of the empirically realistic order of magnitude between the parameters, disentangling market power and capital share tends to diminish the scope for excess R&D. Finally, by differentiating between net and gross returns to specialization we demonstrate what drives the differing inefficiency results in this literature.     

Do business and public sector research and development expenditures contribute to economic growth in Central and Eastern European Countries? A dynamic panel estimation

This paper empirically estimates the role of private and public research and development in explaining growth of Central and Eastern European Countries (CEE) during 1998–2008. We employ a dynamic panel model using the Arellano–Bond's Generalized Methods of Moments (GMM). Our findings suggest that a 1% increase in business R&D intensity boosts economic growth by 0.050 (0.213) % in these countries in the short (long) run. Public R&D is found to be statistically insignificant. When introducing human capital in the regression, the contribution of business R&D to economic growth decreases, although it remains significant. We argue that part of its effect may be accounted for by human capital. While various robustness checks are performed (such as adding different control variables, sub-periods and dummies for the entrance years to the EU), most of the results imply significant business R&D coefficient. Some policy implications are addressed based on our results.     

International R&D spillovers and institutions

The empirical analysis in “International R&D Spillovers” [Coe, D., Helpman, E., 1995. International R&D Spillovers. European Economic Review, 39, 859-887] is first revisited on an expanded data set that we have constructed for the purpose of this study. The new estimates confirm the key results reported in Coe and Helpman about the impact of domestic and foreign R&D capital stocks on TFP. In addition, we show that domestic and foreign R&D capital stocks have measurable impacts on TFP even after controlling for the impact of human capital. Furthermore, we extend the analysis to include institutional variables. Our results suggest that institutional differences are important determinants of TFP and that they impact the degree of R&D spillovers. Countries where the ease of doing business and the quality of tertiary education systems are relatively high tend to benefit more from their own R&D efforts, from international R&D spillovers, and from human capital formation. Strong patent protection is associated with higher levels of total factor productivity, higher returns to domestic R&D, and larger international R&D spillovers. Finally, countries whose legal systems are based on French and, to a lesser extent, Scandinavian law benefit less from their own and foreign R&D capital than countries whose legal origins are based on English or German law.     

R&D intensity of investment across Europe before and after the crisis

In this paper we investigate the comovements between the R&D intensity of private investment and GDP growth in different European Union (EU) areas over the period 1999–2014. Our empirical analysis shows that only core countries display a common countercyclical mechanism leading to an increased intensity of R&D over prolonged downturns. The lack of an effective countercyclical pattern of R&D intensity over the evolution of GDP growth in periphery countries makes this area highly vulnerable to persistent recessions, with potentially harmful consequences for long‐term growth. For recent EU members the evidence of acyclicality should be evaluated in the light of the catching‐up process still at work in this area. Our analysis suggests that any successful EU innovation policy should not disregard the potential divergence in R&D performance due to the dispersion of the countercyclical properties of the investment intensity in productivity enhancing activities in the different EU areas.     

Technology spillover effects and economic integration: evidence from integrating EU countries

The article uses time series for the period 1981–2008 to estimate the impact of foreign technology spillover effects on Greece, Ireland, Portugal and Spain, representing the integrating European Union (EU) countries. I restrict technology diffusion to EU-12 countries and compare the results to unrestricted technology diffusion from a sample of 32 OECD countries. Accounting for nonstationarity and co-integration, the dynamic OLS estimator is used to estimate the impact of foreign R&D stock on labour productivity, taking into account patent-, trade- and FDI-related technology diffusion channels. I find empirical evidence for trade-related foreign technology spillover effects for Greece and Ireland if technology diffusion is unrestricted. Restricting technology diffusion to EU-12 countries, there are significant foreign technology spillover effects from European integration for Portugal (patent related) and Spain (trade and FDI related). Moreover, the domestic R&D stock and education are significant drivers for labour productivity in integrating EU countries. The empirical results are robust for different regression specifications and sources of technology diffusion.     

Biotechnology as a Technological Paradigm in the Global Knowledge Structure

The aim of this study is to analyse whether the receipt of public R&D funding determines firm's R&D strategy selection. This issue is crucial, as previous studies have shown that each R&D strategy is associated to a higher, or lower, innovation performance. We consider three R&D strategies – make, buy, make–buy – and three different sources of public funding – regional, state and other (such as EU). The model estimation is performed through a multinomial logit model with random effects with a sample of 457 large firms for the period 1992–2005, taken from the Spanish Survey of Business Strategies. The main finding is that the source of the funding influences whether firms select the make, buy or make–buy strategy. Additionally, because of the panel structure of the sample, we observe that the effect of public funding on the R&D strategy selection lasts longer for state and regional funds than for other funds.     

Determinants of Chinese direct investments in the European Union

This article analyses the determinants of Chinese foreign direct investment (FDI) activities in the European Union (EU). Evidence is based on panel Poisson models drawing on two investment monitors at the individual project level. Greenfield investments (GI) and mergers and acquisitions (M&A) are distinguished. The findings indicate that market size and bilateral trade are the main factors for Chinese investment in the EU. In contrast, business-friendly institutions do not foster FDI. Probably, Chinese investors are risk averse, and prefer regions with less competitive markets. The striking difference between GIs and M&As is related to unit labour costs. Higher costs make the host country less attractive for the establishment of new firms, but do not affect the involvement in existing firms. The sectoral dispersion of Chinese FDI in the EU did not change much since the global financial crisis. Most relevant shifts have occurred in research and development (R&D), where low-income EU countries have become increasingly attractive.