International R&D Rivalry and Industrial Strategy without Government Commitment

We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfarc are higher when government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment thus yields welfare gains (though they are small) but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.     

Government grants,private R&D funding and innovation efficiency in transition economy

Although the development of the high-tech industry is part of the national agenda of many countries, particularly transition economies, few studies have analysed innovation efficiency in countries with environments unfavourable to high-tech industry development. This study explores the relationships of government grants, private R&D funding and innovation efficiencies of the high-tech industry in China. We use a stochastic frontier analysis model to study the roles of government and market mechanisms in high-tech industry innovation from 1995 to 2008. Findings show that government grants do not crowd out private funding, but stimulate private R&D expenditure. Private R&D funding has positively influenced innovation in the Chinese high-tech industry, and efficiency potentials are widely under-exploited. Additionally, government grants are observed to negatively impact innovation by large firms in the Chinese high-tech industry. Furthermore, we reveal that human capital can promote the innovation performance of high-tech firms, excepting those of medium scale. The findings provide insightful perspectives on China's high-tech industry.     

Government Subsidies of R&D in a Product Cycle Framework: US–Japan Simulations

The welfare effects of R&D subsidies are examined using a product cycle model of trade between two developed countries. Simulations are done for steady-state welfare in Japan and the USA for high- and low-skilled labor over different combinations of subsidy rates. Japanese subsidies to R&D usually benefit Americans owing to an increase in product variety. However, because Japanese R&D reduces wages in the US high-tech sector, American high-skilled workers are hurt if Japanese subsidies are too large. Large American subsidies may cause Japanese innovation to cease. However, Japanese steady-state welfare would be maximized in this case.     

International R&D Rivalry with Spillovers and Policy Cooperation in R&D Subsidies and Taxes

Abstract

We have investigated non-cooperative and jointly optimal R&D policies in the framework of Spencer & Brander (1983) in the presence of R&D spillovers. When R&D activities are strategic substitutes and the R&D game exhibits a positive externality, the result of Spencer & Brander (1983) reverses: the non-cooperative policy is a tax while the jointly optimal policy is a subsidy. Moreover, when R&D activities are strategic complements, the usual result of the prisoners' dilemma in the strategic subsidy game does not hold, implying that a welfare intervention is preferable over laissez-faire. When spillovers are sufficiently large, the joint welfare increases with subsidies being higher than those under non-cooperation.     

The impact of public R&D expenditure on business R&D*

This paper attempts to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades. Grants, procurement, tax incentives and direct performance of research (in public laboratories or universities) are the major policy tools in the field. The major results of the study are the following: Direct government funding of R&D performed by firms has a positive effect on business financed R&D (except if the funding is targeted towards defence activities). Tax incentives have an immediate and positive effect on business-financed R&D; Direct funding as well as tax incentives are more effective when they are stable over time: firms do not invest in additional R&D if they are uncertain of the durability of the government support; Direct government funding and R&D tax incentives are substitutes: increased intensity of one reduces the effect of the other on business R&D; The stimulating effect of government funding varies with respect to its generosity: it increases up to a certain threshold (about 10% of business R&D) and then decreases beyond; Defence research performed in public laboratories and universities crowds out private R&D; Civilian public research is neutral for business R&D. * We thank the participants to various seminars, including the OECD Committee for Scientific and Technology Policy and the NBER 2000 Summer Institute on Productivity for helpful comments and suggestions. All opinions expressed in this article are those of the authors and do not reflect necessarily the views of the OECD or Université Libre de Bruxelles.     

R&D financing and growth

ABSTRACT

R&D investment are an important engine of growth and development. Yet economists have often claimed underinvestment, based on the consideration that these projects are more costly to finance, especially, due to the asymmetric information between inside and outside investors. Coherently, a recent empirical evidence has shown that firms intensively active in R&D are less leveraged and rely more heavily on internal finance. Motivated by this evidence, we study the effects of asymmetric information and financial frictions within a GE economy of Schumpeterian tradition. The model and equilibrium concept are rich enough to represent investment and innovation decisions, technology adoption/diffusion through patent licensing and, most importantly, firms' financial decisions. In this representation, R&D-intensive firms might effectively rely more on internal sources and equity than on debt financing, relative to what would happen in frictionless markets. Further, financial decisions affect aggregate investment and income dynamics.     

Assessing the influence of differentiation strategy and R&D subsidies on R&D cooperation

This paper explores the R&D cooperation determinants of the innovative companies belonging to the Spanish manufacturing sector. Our findings suggest that the variable R&D subsidy is endogenous, significant, and has a strong positive influence on R&D cooperation. This is a clear indication that the achievement of public aid is often conditioned by the obligation for companies to cooperate in R&D. We have also found that the differentiation strategy variable is significant and has a negative influence on R&D cooperation. Companies positioned in a differentiation strategy probably own and use some different knowledge from other companies. Consequently, they will not have much interest in taking advantage of the spillovers generated by other companies. It is therefore logical that they are reluctant to establish cooperation agreements on R&D. Therefore, companies positioned in the differentiation strategy need public policies to support R&D that are not conditioned to the establishment of cooperation agreements.     

Strategic R&D Co-operatives

Although firms have many reasons for investing in R&D, still market forces are believed to be inadequate for directing an optimal amount of funds towards R&D investments. An important tool for diminishing this failure on markets for R&D is to sustain R&D co-operatives, a policy instrument recently (re)discovered by public authorities. For quite some time the formal economics literature did not pay substantial attention to this policy, but with the appearance of the seminal analysis of d’Aspremont & Jacquemin (1988) this silence was abruptly disturbed.The objective of the present paper is to develop a general version of the d’Aspremont & Jacquemin (1988) model which still allows for the calculation of explicit equilibria and therefore enables a comparison between co-operative and non-co-operative R&D. While pursuing this objective an analysis is presented which encompasses several recent contributions to the literature.Having established this general characterization of a market with possible strategic R&D co-operatives the arguments against and in favour of this industrial policy are evaluated. It appears that there are circumstances when these strategic alliances could indeed be socially beneficial. However there remains always the threat of firms increasing their market power by extending the co-operative agreement to the product market.     

R&D subsidies and private R&D expenditures: evidence from Italian manufacturing data

This paper uses a comprehensive firm level data set for the manufacturing sector in Italy to investigate the effect of government support on privately financed R&D expenditure. Estimates from a non‐parametric matching procedure suggest that public assistance has a positive effect on private R&D investment in the sense that the recipient firms achieve more private R&D than they would have without public support. This indicates that the possibility of perfect crowding out between private and public funds can be rejected. Furthermore, in this sample of Italian firms, tax incentives appear to be more effective than direct grants. The paper also examines whether public funding affects the financial sources available for R&D and finds that grants encourage the use of internal sources. The results also show some evidence of positive effects on credit financing for R&D.     

R&D boundaries of the firm: An estimation of the double-hurdle model on commissioned R&D,joint R&D,and licensing in Japan

This paper studies the firm’s decisions on in-house R&D and its procurement from outside through commissioned R&D, joint R&D, and technology acquisitions (i.e., licensing-in). Using the data about 14,000 manufacturing firms in Japan, we estimate a modified double-hurdle model in which the first hurdle determines whether the firm should perform any R&D at all and the second hurdle determines whether (and how much) it should perform each mode of procured R&D. The results generally support the two major theories—the transaction cost theory and the capability theory. The estimated positive effects of firm size, in-house R&D intensity, diversification, and vertical integration support the hypothesis that capability is needed for procured R&D, while the estimated positive effect of the index of appropriability by patents supports the hypothesis that this appropriability reduces transaction costs. In addition, we found that information flow from scientific sources and that from transaction-based sources affect the three modes of procured R&D differently.     

Competition and Persistence of R&D

This paper investigates the R&D persistence of R&D active firms in different markets with different intensities of competition, based on firm-level panel data for the period 1996–2008. In a dynamic setting of the empirical model, it turns out that persistence is strongly related to market competition (measured by the number of principal competitors). Persistence of R&D expenditures is more likely to be observed in markets with few principal competitors (between six and 10) and is very unlikely to be observed in polypolistic market types (more than 50 competitors).     

R&D and productivity: evidence from large UK establishments with substantial R&D activities

ABSTRACT

We use Office for National Statistics' micro data for large UK establishments in the production industries in the period 1997–2008 to study the relationship between their productivity and the presence of substantial R&D activities, either at the production unit itself, or at other UK reporting units owned by the same enterprise group. We estimate that total factor (revenue) productivity is on average about 14% higher at the establishments which have substantial R&D themselves, compared to those with no R&D. Among the establishments with no R&D themselves, we estimate that productivity is on average about 9% higher at those which belong to enterprise groups which do have substantial R&D elsewhere in the UK in the same sub-sector. For the establishments with substantial R&D themselves, we also estimate a significant positive relationship between current productivity and past R&D expenditure using dynamic specifications which allow for both establishment-specific ‘fixed effects’ and a serially correlated error component.     

Competitiveness and R&D competition revisited

This paper formulates a duopoly model of firms concerned with relative profits as well as their own profits and investigates the relationship between the degree of competitiveness in a market and R&D expenditure. We find a non-monotone relationship between the two variables. When the duopoly market is not particularly competitive and when it is highly competitive, R&D activities are intensified. Thus, we are able to obtain similar results to both the pro-competitive and the Schumpeterian views in a single framework. We also discuss the welfare implications of changing competitiveness and consider cases of oligopoly and R&D cooperation as extensions to our basic model.     

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.     

Antidumping protection and R&D competition

Abstract.  In recent years antidumping protection has spread throughout the world. Evidence shows that antidumping often targets R&D‐intensive sectors, raising a concern that it may adversely affect worldwide investments in R&D. We investigate this issue in a model of reciprocal dumping extended to a two‐stage game, in which two firms first choose R&D levels and then compete in prices. We find that, when a single government institutes antidumping law, the protected firm decreases investment in R&D, while the constrained firm invests more. When both governments engage in antidumping actions, both firms invest more in R&D than under free trade. JEL classification: F12, F13     

Foreign and domestic R&D investment

A considerable share of R&D investment is due to multinational firms that simultaneously operate R&D bases at home and abroad. We develop a simple model of foreign and domestic R&D investment and test the model's predictions on a sample of 146 Japanese multinational firms’ R&D investments in Japan and the United States in 1996. The empirical results confirm that the foreign to domestic R&D ratio depends on relative technological opportunities and relative demand conditions, with foreign research expenditures responding to technological opportunity and foreign development expenditures responding to demand.     

Strategic timing in R&D agreements

We study the endogenous formation of R&D agreements in a R&D/Cournot duopoly model with spillovers where also the timing of R&D investments is endogenous. This allows us to consider the incentives for firms to sign R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In this case, the stability of an agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When spillovers are sufficiently high, the coordination of R&D efforts becomes a profitable option, although firms may also have an incentive to sequence noncooperatively their investment over time. Finally, when spillovers are asymmetric and knowledge mainly leaks from the leader to the follower, investing as follower may become extremely profitable, making R&D agreements hard to sustain unless firms strategically delay their joint investment in R&D.