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.     

R&D and foreign direct investment with asymmetric spillovers

This paper analyzes how firms’ R&D investment decisions are affected by asymmetries in knowledge transmission, considering different sources of asymmetry such as unequal know-how management capabilities and spillovers localization within an international oligopoly. We show that a better ability to manage knowledge flows incentivizes the firm to invest more in R&D. By introducing geographically bounded spillovers, we also find that one-way foreign direct investment (FDI) stimulates the multinational enterprise to raise its own R&D and that an FDI equilibrium is more likely to occur. Finally, spillovers localization leading to two-way FDI is welfare improving when compared with non-localized spillovers.     

A comparative analysis of the change in R&D efficiency: a case of R&D leaders in the technology industry

This paper measures the cumulative change in research and development (R&D) efficiency of globally leading R&D companies in the technology industry. We use Data Envelopment Analysis /Malmquist index to analyse 49 such companies. The change in R&D efficiency is analysed by decomposing the Malmquist index into ‘catch-up’ and ‘frontier shift’ indices, and by comparing cumulative indices to those at the starting period. Those cumulative indices are obtained at both a firm and an industry level. Results indicate that the overall R&D efficiency of these globally leading R&D companies declined slightly during the period 2007–2013. At a firm level, this study determines in detail how the trend of each firm in R&D activities differs from other companies.     

Battle royal in biotechnology: R&D vs. product vs. process innovations

Companies regard innovation as a central element of their business. However, as not all innovation types are the same, the central question is: should their announcements bring about the same effect on performance? This article analyses potential differences in firm value derived from the innovation-type announcements ‘R&;D’, ‘product’, and ‘process’, made by intensive news-generating firms such as biotech companies. The empirical application shows a significantly positive reaction to innovation announcements, with the prospect of future innovation (‘R&;D’ investment announcements) having greater impact on firm value than ‘product’ and ‘process’ innovations. Firm experience also acts as a moderator in this innovation–performance relationship, which is particularly relevant for entrepreneurs who need to develop and send credible signals indicating the value of the firm's intangible assets to the market.     

R&D strategy and innovation performance: the role of standardization

Firms now increasingly recognise the important role of R&D strategy in building technological advantage. However, few attempts have linked standardisation with specific R&D strategies in explaining innovation performance. To bridge this gap, this study empirically examines the relationships between R&D strategies, standardisation, and firms’ innovation performance. Based on a sample of 371 firms in China, we use structural equation modelling (SEM) and find that novelty-oriented R&D strategy generates greater accumulation of standardisation knowledge and standards diversity, while R&D openness only positively relates to this standardisation knowledge accumulation. Moreover, standardisation knowledge accumulation is positively related to both administrative and technical innovation performance, while a greater variety of standards only leads to higher administrative innovativeness. More importantly, our results reveal that accumulation of standardisation knowledge mediates the relationships between R&D novelty and administrative and technical innovation performances. Both the theoretical and practical implications that arise from these findings are discussed.     

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.     

A computational analysis of R&D support programs

We compare two common government R&D support programs, R&D tax credits and direct R&D grants. To study their effectiveness and the extent to which their design matters, we analyze these programs within a dynamic equilibrium model of imperfectly competitive industries. Adopting comprehensive welfare measures that take into account government, producer and consumer surpluses, we find that both schemes exhibit positive social returns. Mid-range R&D-intensive sectors exhibit higher social returns than either high or low R&D-intensive sectors. Both incentive schemes generate positive measures of R&D input additionality of magnitudes consistent with empirical R&D research. However, R&D grants that require firms to allocate subsidy funds to R&D spur less R&D than a more flexible R&D tax credit. Subsidy schemes can even induce competing firms to over-spend on R&D, generating negative producer surplus and possibly negative social returns.     

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.     

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.     

Determinants of R&D in knowledge-intensive business services firms

Research and development (R&D) is a key factor enabling firms to gather information, create knowledge and innovate. Although often seen as the preserve of goods-producing sectors, knowledge-intensive business services (KIBS) in particular also engage in R&D. In this paper, we are interested in understanding the determinants of R&D in KIBS. We address this question by exploring factors connected to R&D in KIBS, with attention to whether it is connected with internal capabilities or to establishments' openness. We show that KIBS' R&D is associated with internal capabilities, and that recourse to external R&D is part of a strategy of openness that complements internal capacity. We also suggest that KIBS's own view of R&D is aligned with R&D in the goods-producing sector, leading establishments in non-technological KIBS sectors to under-report R&D.     

The productivity effects of local R&D outsourcing: the moderating role of subsidiary mandate and internal R&D

This study examined the moderating effects of two kinds of internal R&D (parent R&D and subsidiary R&D) on the relationship between local R&D outsourcing and subsidiary productivity as internal R&D challenges the collaborative relationships in the local environment. Due to the specific feature of a subsidiary mandate, we further investigate whether two distinct kinds of internal R&D have different moderating effects between exploitation-oriented subsidiaries and exploration-oriented subsidiaries, based on a sample of longitudinal data set of 263 Taiwan-based manufacturing subsidiaries over the period 2006–2009. The empirical results show that for exploitation-oriented subsidiaries parent R&D plays a significant and negative moderating role on the impact of local R&D outsourcing based on local collaboration, while a positive moderating role is observed with parent R&D and subsidiary R&D for exploration-oriented subsidiaries.     

Value maximizing hurdle rates for R&D investment

We show that the value maximizing hurdle rate for research and development (R&D) investments among private firms operating in a market setting is less than for conventional investments despite the fact that R&D has development risk. Because development risk arises only during R&D, entrepreneurs control this risk by deferring or pursuing R&D depending upon profitability. This risk management moderates downside loss and encourages upside gain which increases the value attraction of R&D and decreases the value maximizing hurdle rate below that of conventional investment.     

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.     

Innovation in R&D service firms: evidence from the UK

Research and Development (R&D) service firms make significant contributions to innovation in other businesses. The extant literature considers these firms a homogenous sub-group of Knowledge Intensive Business Service firms (KIBS). The objective of this study is to investigate how R&D service firms innovate and the variety of innovation practices within these firms. Employing data from semi-structured interviews with senior managers from 32 UK-based R&D service firms, we suggest that there are two different modes of innovation: in the first mode, R&D service firms innovate similarly to KIBS whose innovation is ad-hoc in nature and driven by customers’ requests; another group of R&D service firms innovate like New Technology-based Firms (NTBFs) relying more on structured in-house R&D activities.     

R&D policy in a vertically related industry

In this paper, we analyze the effectiveness of public policy aimed to stimulate business-performed R&D in a vertically related market. We examine the role of an R&D active upstream supplier in a four-stage R&D model, where we incorporate public funding. The considered policy instrument is direct funding of firms’ R&D efforts. We calculate the optimal policies and show that they have a positive impact on firms’ R&D investments. From a welfare point of view, it is optimal to differentiate the subsidy rates between the upstream and the downstream markets. Competition in the product market leads to a higher subsidy rate to the upstream supplier than to the downstream firms. When concentration is high in the downstream market, the optimal solution is an R&D subsidy for these firms, otherwise the optimal solution is an R&D tax for the downstream firms.     

R&D,export and investment decision: evidence from European firms

This article provides an empirical investigation of the mechanism through which R&D influences export and tangible investment decisions. The analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. The novelty of this work lies in the three aspects. First, we expand the results on the R&D–export and R&D–investment relationships to a wide sample of cross-European firms. This differentiates from previous works based on single-country samples. Second, to the best of our knowledge, this study is the first in years which assess empirically the relationship between R&D and tangible investment at the micro level. Third, we control for endogeneity of R&D and simultaneity in firms’ decision whether to export and carry out tangible investment. The results of the analysis suggest that R&D positively affects export propensity and tangible investment. The results also reveal that neglecting endogeneity and simultaneity issues leads to underestimate the effect of R&D to both export and investment propensities.     

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.     

Cooperative vs. non-cooperative R&D incentives under incomplete information

This paper studies incentives for cooperative research vis-à-vis non-cooperative research in an incomplete information framework. We show that with quantity competition under asymmetric information, the expected payoff from non-cooperative research goes down compared to the case of symmetric information; hence research joint venture incentives of the firms are larger under asymmetric information. In either case, however, the larger is the size of the cost-reducing innovation the lower is the incentive for cooperative research. Finally, in our model, incomplete information does not affect the consumers' welfare, but the firms become worse off.     

Matching public support for private product-innovating R&D: a theoretical analysis

This paper develops a theoretical model of product innovation where research and development (R&D) effort by a monopolist firm is endogenous and its outcome uncertain. The government attempts to aid such efforts with a matching grant. We consider different scenarios depending on whether two parties act simultaneously, act sequentially, or take part in a dynamic cooperative game with a trigger strategy. We also consider cases (i) when the products are exported, (ii) when the firm lobbies for R&D subsidy, and (iii) when the firm is foreign owned. We characterize situations when government intervention increases the chances of product innovation and when it does not.     

Service-sector competition,innovation and R&D

The central prediction of the Aghion, Bloom, Blundell and Howitt model is an inverted U-shaped relationship between innovation and competition. The model is built on the assumption of a product market and has not yet been tested on the service sector. Using detailed firm-level data on Swedish service-sector firms, we find evidence of an inverse U-shaped relationship for exporting service-sector firms. A further breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for intramural R&D and training, but not for extramural R&D. Finally, the results indicate that as competition increases, small firms tend to seek strategic alliances with competitors, whereas large firms tend to reduce collaboration with competitors. The behavior of large firms can partly be due to their superior capacity to handle innovation projects internally, which will become more important if increased competition results in higher pay-offs to innovation.