R&D intensity,economic growth and firm-size growth: theory and practice

This article proposes a theoretical knowledge-driven horizontal research and development (R&D) endogenous-growth model to explain, for 10 innovative countries, the co-movement of the respective R&D intensity, economic growth and firm-size growth, by exploring short-medium-run and long-run growth effects. Bearing in mind some recent literature, we improve the R&D technology, by considering that R&D is more labour intensive through time as complexity increases, that the diffusion of designs is affected by coordination, organizational and transportation costs, and that a potential entrant will come up with the right idea is reduced because of the presence of a larger number of entrants. We show that when the economy is not initially in a steady state, it can take a saddle path towards the unique and locally saddle-path stable interior steady state. Both transitional-dynamics and steady-state behaviours of our theoretical model are then consistent with, respectively, the time-series and the cross-sectional evidence.     

Assessing the nonlinear nature of the effects of R&D intensity on growth of SMEs: a dynamic panel data approach

Based on a sample of Portuguese SMEs for the period 1999–2006 and using two step estimation, namely probit regressions and dynamic estimators, this study makes two important contributions to the literature: (i) identification of a quadratic relationship between R&D intensity and SME growth that takes the form of a U, and so R&D intensity is a stimulating factor of SME growth for high levels of R&D intensity; being a restrictive factor of SME growth for low levels of R&D intensity; and (ii) the growth of SMEs seems to be dependent on the nonlinear effects associated with distinct levels of R&D intensity. The nonlinear effects identified suggest that Portuguese SMEs with high levels of R&D intensity more easily find an efficiency scale and are more dependent on internal financing and short-term debt as sources for funding growth, compared to the case of Portuguese SMEs with lower levels of R&D intensity.     

How does leverage affect R&D intensity and how does R&D intensity impact on firm value in South Korea?

We examine how leverage affects corporate research and development (R&D) intensity, as well as examine the impact of R&D on firm value in South Korea, a country in which corporate-funded R&D intensity is one of the highest in the world. Among our main results, we find that growth opportunities have a positive effect on R&D intensity, while leverage has a negative effect on R&D intensity. When leverage is at an extremely high level, the relationship between growth opportunities and R&D intensity turns from positive to negative. Using instrumental variables, we find that R&D generates an increase in firm value.     

On the impact of innovation and inequality in economic growth

We present robust results on the empirical relationship among income inequality, innovation, and economic growth for a panel dataset of 74 countries over the period 1996–2014. We estimate pairwise causality tests to show that there is bidirectional causality between GDP per capita and R&D, while R&D causes the Gini index of income inequality, and it causes human capital. Allowing coefficients to be different across cross-sections of countries, we get in any case a pairwise bi-directionality. By dynamic panel data estimations, when regressing R&D on GDP per capita, we obtain a threshold value of 0.16% of R&D such that for values above it there is economic growth. While regressing R&D on the Gini index, we get a threshold of 0.10% of R&D above which, the income distribution begins to improve. Finally, we estimate a growth equation that depends on R&D, income inequality, and physical capital. We obtain two thresholds, one of 38.79 for the Gini (above which the economic growth decreases), and one of 0.06% for R&D such that above it, economic growth is rising.     

Does R&D spending boost tangible investment? An analysis on European firms

This article investigates the relationship between firm’s R&D intensity, expressed as R&D expenditure over sales, and investment intensity in tangible assets. It is commonly acknowledged that R&D requires additional physical investment to be implemented. R&D increases a firm’s productivity and return to tangible investments, thus, providing to the firm incentives to bear high tangible capital costs and to invest more. This represents a crucial issue for a firm’s growth, particularly considering the strong interaction between physical capital accumulation and technological progress. The analysis is based on a large sample of manufacturing firms across seven European countries in the period 2007–2009. Since the sub-sample of firms performing R&D might not be random, there may potentially be an endogeneity issue. The analysis also considers that firms may decide to spend on R&D and investment in physical capital simultaneously. The questions of both endogeneity and simultaneity are dealt with by employing an instrumental variable two-step procedure. We find a positive and significant impact of R&D intensity on firms’ tangible investment intensity. The econometric results highlight the importance of financial factors, particularly with respect to firms’ internal resources. Exposure to international trade has a negative impact on investment, possibly depending on the time-span of the sample used.

Abbreviations: Technological Innovation and R&D; Investment Capital; Industry Studies; Firm Behavior; Empirical Analysis     

The impact of the informal economy on R&D,wage inequality and economic growth

We extend the existing research and development (R&D) growth literature by focusing on the short–medium–long run effects of the informal sector on R&D intensity, wage inequality and economic growth, and by considering 18 OECD countries between 1990 and 2008. We show that: the steady state is unique and stable; the share of informal economy (IE) in production affects negatively R&D intensity and wage equality; Nordic countries have the lowest share of IE in production, while Mediterranean countries have the highest share of IE, wage inequality and R&D intensity but R&D spillovers are lower.     

Effect of the Tax System ON R&D Intensity,Growth, Wages and Consumption Share

We propose a general equilibrium knowledge‐driven (semi‐)endogenous‐growth model with horizontal R&D, which is extended to consider two types of labour, skilled and unskilled, and exogenous government expenditure, financed through taxes on financial assets and on labour income, to analyse the implications of the tax system on R&D intensity, economic growth, wage inequality and consumption share in the output. In particular, we show that: (i) taxes have negative influence in the consumption share, being higher the marginal effect of the labour‐income tax; (ii) for any given government expenditure share, an increase (a decrease) in financial‐assets tax decreases (increases) the labour‐income tax; (iii) only the financial‐assets tax affects negatively the R&D intensity and the skill‐premium; thus, to reduce the skill‐premium the financial‐assets tax must increase; (iv) ignoring the effect on wage inequality and on R&D intensity, taxes are substitutes.     

Vertical educational diversity and innovation performance

This paper uses panel data of Swiss firms to analyse the impact of education-level diversity in the workforce on innovation performance, addressing endogeneity by exploiting within-firm variation as well as variation in labour supply across regions. We find that vertical educational diversity increases the extensive margin of R&D and product innovation, particularly new product innovation. However, the relationship with process innovation, R&D intensity, and product innovation intensity is insignificant. These results are in line with the idea that vertical educational diversity enhances the creative moment of the invention phase, while it has no effect on the commercialization phase due to the relevance of coordination and communication costs relative to the gains in creativity.     

Analysis of the impact of agricultural R&D investment on food security

This article investigates how agricultural R&D investment affects the food self-sufficiency ratio (SSR). Several studies have argued a causal relationship between agricultural R&D investment and food security. However, most of these studies are based on conceptual logic and few studies have conducted an empirical analysis. This study verifies whether agricultural R&D investment affects the food SSR as a representative indicator of food security. A total of 822 data sets of 41 countries have been used in the analysis in this study and include developed and developing country data over the period 1981–2009. Food self-efficiency is used as a dependent variable, and agricultural R&D investment and other variables are used as explanatory variables. The estimation results show that, first, the cereal SSR and income are in an inverted U-shaped relationship. Second, increases in land productivity increase the cereal SSR and, lastly, the cereal SSR ratio and agricultural R&D investment are in a U-shaped relationship.     

GENERAL PUBLIC LICENSING AND THE INTENSITY OF AGGREGATE SOFTWARE DEVELOPMENT

We develop a theoretical model in which the sophistication of technologies improves over time due to research and development (R&D) undertaken by software developers in two sectors. In the commercial sector, R&D intensity is driven by economic incentives, whereas in the sector using the General Public License (GPL), it is driven by the preference-based labor supply of individuals. A higher amount of GPL labor allocation generates equilibrium effects that adversely affect commercial software development. When the degree of imitation in the GPL sector is relatively higher than in the commercial sector, or the commercial sector has increasing returns of a limited degree, the R&D intensity in the commercial sector would decline by more than any increases in R&D intensity in the GPL sector. Thus, aggregate R&D intensity in the long run would be reduced. Numerical simulation indicates that this outcome pertains under realistic parameter ranges.     

Growth regression revisited: R&D promotes convergence?

Barro and Sala-i-Martin (2004) analysed the empirical determinants of growth. They used a cross-sectional empirical framework that considered growth from two kinds of factors, initial levels of steady-state variables and control variables (e.g. investment ratio, infrastructure). Recent literature suggests that Generalized Method of Moments (GMM) estimation of dynamic panel data models produce more efficient and consistent estimates than Ordinary Least Squares (OLS) or pooled regression models. Following Cellini (1997), we also consider co-integration and error-correction methods for the growth regression. We extend the previous research for Asian countries of Kim (2009) to developed countries. Following the implications of semi-endogenous growth theory, we regressed output growth on a constant, 1-year lagged output (initial income) and the determinants of steady-state income (investment rate, population growth, the quadratic (or linear) function of Research and Development (R&D) intensity). The regression suggests faster significant convergence. This contradicts with that of Mankiw et al. (1992), which asserts that the speed is lower when considering broad concept of capital including human capital. The coefficients for the determinants of steady-state income, especially for the quadratic function of R&D intensity, are significant and occur in the expected direction. Our results suggest that adopting appropriate growth policy, an economy can grow more rapidly through transition dynamics or changing fundamentals.     

The Indian growth miracle and endogenous growth

Using over half a century of R&D data for India, this paper tests whether the second-generation endogenous growth theories are consistent with India's growth experience. Furthermore, the paper examines the extent to which growth in India can be explained by R&D activity, international R&D spillovers, catch-up to the technology frontier and policy reforms. The empirical results show that the growth in India over the past five decades has been driven by research intensity following the predictions of Schumpeterian growth theory.     

Employment growth and innovation at the firm level

We analyze the influence of innovation on growth rates of employment in 859 Dutch manufacturing firms over the period 1983–1988. Whereas the (growth of the) R&D intensity of firms has a slightly negative impact on employment, we find that firms with a high share of product-related R&D (as a proxi of R&D related to industrial activities in an early stage of the life cycle) experienced an above average growth of employment. The same holds for firms which directed their R&D towards information technology. Smaller firms have, ceteris paribus, substantially higher growth rates of employment than their larger counterparts. Against our expectations, R&D cooperation has no significant impact on employment growth. The same holds for activities in the fields of biotechnology and new materials.     

Domestic R&D and offshoring: does offshoring reduce knowledge production?

An important question in industrialized countries is whether offshoring activities reduce the probability of performing own research and development (R&D) or whether the R&D intensity falls in firms that already have R&D activities. This question is addressed using a unique data set that combines survey and register data. No evidence is found for a lower probability of own R&D after offshoring takes place compared to before. Moreover, offshoring does not lead to lower R&D intensity in general. However, firms that offshore R&D activity have larger R&D intensity after offshoring has taken place, which suggests that R&D performed at home is complementary to foreign R&D.     

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.     

Founders’ human capital and external knowledge sourcing: Exploring the absorptive capacity of start-up firms

ABSTRACT

This study highlights the importance of founders’ human capital on firms’ absorptive capacity for explaining the external knowledge sourcing (licensing-in and joint R&D) of start-up firms, using panel data from original questionnaire surveys conducted in Japan. The results of a probit model with an endogenous regressor show that firms managed by founders with a high level of specific human capital, measured as prior innovation experience and industry-specific work experience, tend to engage in external knowledge sourcing because of their superior absorptive capacity. The findings indicate that this type of human capital also promotes research and development (R&D) investment. Contrariwise, this study finds that firms managed by founders with a high level of general human capital, measured as educational attainment, tend to invest more in R&D, which enhances their absorptive capacity and thereby promotes external knowledge sourcing. Finally, the implications of these findings are discussed from the perspective of public policy.     

The impact of health sector on R&D,economic growth and wages

We extend the existing R&D growth literature by focusing on the short-, medium-, long-run effects of the health sector on R&D intensity, economic growth and wages, and by considering 21 OECD countries between 1991 and 2008. We show that: (i) there is a unique and stable steady state; (ii) an increase in health-labour share in skilled population has no effect on growth, but affects negatively (positively) the R&D intensity (the skill premium); (iii) Anglo–Saxons countries have the lowest health-labour share in skilled-labour population, and Nordic countries have the lowest skill premium and the highest consumption/production of healthcare per capita.     

Entry of foreign firms and the R&D behaviour: a panel data study of domestic and foreign firms in China's manufacturing sector

Rapid globalization has resulted in increased competitive pressures. The entry of foreign firms in a host economy increases the level of competition faced by not only the domestic firms but also the existing foreign firms. We argue that domestic firms, especially in developing countries, respond to this situation by increasing their research and development (R&D) spending, whereas the foreign firms decrease their R&D spending. By making use of firm-level panel data from China's manufacturing sector, over the period 2005–2007, this paper investigates the impact of the entry of foreign firms on R&D behaviour of domestic and foreign firms. Empirical analysis, based on Tobit and Instrumental Variables Tobit regression, reveals that foreign entry increases the R&D intensity of domestic firms but its impact on R&D intensity of foreign firms is negative. The estimated results are found to be robust across balanced and unbalanced panels.     

中国研发投入的动态演化

R&D investment is enterprises’ strategy based on the market demand on innovative products and its production capacity for them. Enlarging market demand would spur the enterprises’ R&D input and the enhancement of technology state in production ability could have a complex effect on less developed countries’ R&D expenditure. With the measurement of China’s technology state compared to the United States and Japan, this paper explores with the state space model the dynamic effects of determinants on China’s R&D expenditure with the data during 1987–2006. The result illustrates that the growing national income, a proxy of domestic market demand, impedes the further R&D investment in China due to the enormous demand for necessities dominated by lower income class, and the income inequality is the major incentive for R&D investment via the higher pricing on the wealthy group, and that the improvement of technology state reduces the innovation risk and plays an important role in stimulating R&D expenditure.      

R&;D: A Small Contribution to Productivity Growth

In this article I evaluate the contribution of R&D investments to productivity growth. The basis for the analysis are the free entry condition and the fact that most R&D innovations are embodied. Free entry yields a relationship between the resources devoted to R&D and the growth rate of technology. Since innovators are small, this relationship is not directly affected by the size of R&D externalities, or the presence of aggregate diminishing returns in R&D after controlling for the growth rate of output and the interest rate. The embodiment of R&D-driven innovations bounds the size of the production externalities. The resulting contribution of R&D to productivity growth in the US is smaller than 3–5 tenths of 1% point. This constitutes an upper bound for the case where innovators internalize the consequences of their R&D investments on the cost of conducting future innovations. From a normative perspective, this analysis implies that, if the innovation technology takes the form assumed in the literature, the actual US R&D intensity may be the socially optimal.