The Two Faces of R&D: Does Firm Absorptive Capacity Matter?

This paper examines the dual effect of firm R&D efforts on productivity growth for Swedish manufacturing firms. The R&D efforts do not only stimulate innovation but also enhance firms?? ability to identify, assimilate and exploit new knowledge from the environment (Cohen and Levinthal. Economics Journal 99:569?C596, 1989). In this paper, we assume that the principal channel of transmission of new knowledge is through I/O linkages. Our econometric evidence suggests that in addition to the firm??s own R&D activities, R&D spillovers embodied in traded goods within the industry, others imported from abroad, and technology spillovers transferred from the technological frontier within an industry are important determinants of firms?? productivity growth. Results suggest that domestic R&D spillovers following the I/O links between industries are of minor importance in this respect. We also analyze whether firms?? absorptive capacity matters for productivity growth. Analyzing absorptive capacity is particularly important for assessing the effective contribution of spillovers from other firms. The effect of a firm??s absorptive capacity is found to interact positively with imported R&D spillovers, whereas domestic rents spillovers seem to play a minor role for productivity growth.     

R&D spillovers through trade in a panel of OECD industries

This paper investigates the significance of Research and Development (R&D) spillovers through intra- and international trade in intermediate goods for productivity growth in a panel of OECD industries during 1973–1994. In the model, four different sources of R&D are identified: R&D conducted in the particular industry itself, R&D conducted in the same industries in other countries, R&D conducted in other domestic industries, and R&D conducted in other foreign industries. I find that among R&D sources the most important contributions to productivity growth come from the domestic R&D efforts. Here, own R&D is important for both domestic innovation and for the productivity catch-up process. Evidence that international R&D spillovers also have significant effects on productivity growth is found to be less robust. My analysis also shows that human capital affects productivity directly as a factor of production.     

A comparison of revenue growth at recent-IPO and established firms: The influence of SG&A, R&D and COGS

A dynamic view of the resource based theory (RBT) examines how a firm builds its resources over time, considering variations in resources' growth rates while the firm attempts to grow. Accordingly, we consider the elasticity of accumulated resources to assess conditions where these resources might serve as substitutes for rather than complements to COGS during periods of growth. We specify a production function that links aggregate resource allocation among SG&A, R&D and COGS expenses to a firm's revenue. This function yields a set of hypotheses on the elasticity of SG&A and R&D, and the productivity of COGS, while controlling for the revenue growth rate. We test these hypotheses on a dataset of 64 randomly selected firms that recently underwent an IPO, and a comparable set of 64 established public firms from four high-technology sectors. Results show that the accumulated stocks of resources can serve as substitutes for rather than complements to COGS, and the manner in which recent-IPO firms allocate and use resources differs from their established counterparts. We discuss the implications of associated elasticity and productivity results.     

Domestic vs. International Spillovers: Evidence from Swedish Firm Level Data

This paper investigates the association between total factor productivity growth and the R&D expenditures of Swedish manufacturing firms in the presence of domestic- and international R&D spillovers. The paper assumes that the principal channel of transmission of new technology is through I/O relations. Econometric evidence suggests that international as well as domestic inter-industry R&D spillovers are important determinants of firms’ productivity growth in the long run. The R&D spillovers generated within the industry and following I/O links seem to be of minor importance in explaining productivity growth. It seems likely that within-industry productivity spillovers follow other channels than I/O flows, such as horizontal spillovers through copying of new products and processes, or labour turnover. The use of a convergence parameter is one way to check for such within-industry technology flows. Our results indicate that a catch-up process exists by which the non-frontier firms in the Swedish manufacturing sector absorb knowledge spillovers from the leading firms in the industry. Finally, a firm’s own R&D efforts are found to be more or less positively correlated with the TFP growth, maybe the contribution from R&D efforts in some sense are underestimated.     

Absorptive capacity,learning and profiting from outward FDI: Evidence from Canadian firms

The extant literature highlights a threshold productivity level firms are required to attain ex-ante in order to successfully undertake FDI. The current paper extends this framework by modelling a threshold productivity range which is below the required threshold productivity level. Firms in this range can successfully venture abroad when learning allows these firms to rise above that threshold productivity level, ex-post. Theoretical models which predict negative profitability for firms which undertake FDI when below the required threshold productivity level are extended to incorporate learning, and negative profits during the transition path turn positive once productivity increases above the threshold productivity level. The hypotheses developed are tested using panel data on firms operating in Canada over the period 2000 to 2014. These firm-level data include measures of productivity, firm size, R&D intensity, and when firms undertake outward FDI. We demonstrate that firms which venture abroad while in the threshold productivity range and also have sufficiently high levels of absorptive capacity, proxied by R&D intensity, are able to learn from their foreign experience, and hence increase their productivity levels, ex-post.     

Foreign Direct Investment and Productivity Spillovers: Firm-Level Evidence From Chilean Industrial Sector

Using firm-level panel data, this article examines whether spillovers from foreign direct investment (FDI) make a contribution to productivity growth in Chilean manufacturing firms. The main contribution of this work is to apply a methodology to estimate, in a consistent manner, the productivity impact of investment climate variables, such as FDI. With this aim, the spillover effects from FDI are analyzed using a stochastic frontier approach (SFA). Productivity growth is decomposed using a generalized Malmquist output-oriented index. The results show positive productivity spillovers from FDI; higher competition is associated with larger spillovers; and firms with high R&D effort gain more spillover benefits compared to those with less R&D effort.     

Quantile estimates of the impact of R&D intensity on firm performance

This paper investigates the relationship between initial research and development (R&D) intensity and firm growth using a unique data set for firms with R&D activities in Austria during the period 1995–2006. Results based on the least absolute deviation (LAD) estimator show that initial R&D intensity has a positive and significant impact on both employment and sales growth in the subsequent 2 years. Quantile regressions for each cross-section reveal that the impact of R&D intensity is significant from 0.3 to the highest quantile of the conditional distribution of employment growth. Furthermore, the elasticity of employment growth with respect to R&D intensity is highest for firms at or slightly below the median of the distribution of firm growth. Finally, we find that the impact of R&D decreases significantly over time.     

Pro-market reforms and the outsourcing tradeoffs: Evidence from the transition economies

What determines the firm scope is a fundamental question driving strategy and international business research. Extant literature examining a firm’s vertical scope decision has historically not accounted for the influence of institutional reforms. To fill this gap, we develop a theoretical framework based on insights from institutional economics to examine how pro-market reforms and firm-level R&D activity influence the likelihood of outsourcing production activities. Using data from the Business Environment and Enterprises Performance Surveys conducted by World Bank and European Bank for Reconstruction and Development in twenty-eight transition economies, we analyze the influence of pro-market reforms on the outsourcing decision. We do not find support for a strong direct influence of pro-market reforms on the likelihood of starting outsourcing. However, we find evidence that pro-market reforms influence the relationship between R&D activity and the likelihood of outsourcing. Interestingly, economic and legal reforms moderate the relationship between R&D activity and the likelihood to start outsourcing in different ways. While economic reforms weaken the positive relationship between R&D activity and outsourcing, legal reforms strengthen it.     

R&D Productivity and the Spillover Effects of High‐tech Industry on the Traditional Manufacturing Sector: The Case of Taiwan

This study sets out to estimate the impact of R&D on productivity within the private sector, with further analysis of the different impacts of R&D within high‐tech and traditional manufacturing firms. We also attempt to examine the spillover effects from R&D investment in the high‐tech sector on productivity growth within the traditional industries. Using a sample of 136 large manufacturing firms during the period 1994–2000, we develop an extended version of the Cobb‐Douglas production function model, and our findings suggest that Taiwan's R&D investment had a significant impact on firm productivity growth, with output elasticity standing at around 0.18. When the sample is divided into high‐tech and traditional firms, the R&D output elasticity in high‐tech firms is significantly greater than that found in traditional firms. In addition, the average rate of return in high‐tech firms is much greater than that estimated for other industries. Besides, our empirical results show that, although significant, the impact of R&D investment from the high‐tech sector, on the productivity growth of traditional firms, is rather limited.     

Intangibles Trade and MNEs: Supply-Chain Trade in R&D Services and Innovative Subsidiaries

This paper contributes to the literature on vertical specialization in R&D (or ‘R&D fragmentation’) and trade in intermediate services by examining the role of multinational enterprises (MNE) activities associated with bilateral foreign direct investment (FDI). Prior work in production networks (or global value chains [GVCs]) and R&D fragmentation suggests a complementarity relationship between FDI in R&D and technological knowledge flows. The paper examines this proposition empirically for R&D services trade by extending the gravity framework of supply-chain trade for intermediate services with bilateral MNE operations as economic mass variables. The results are partially consistent with the hypothesized complementarity. The econometric strategy accounts for zero trade observations. The latter addresses possible selection and consistency issues of traditional gravity trade specifications, and allows exploring extensive vs. intensive margin of trade. Understanding the role of MNEs in these transactions may be useful for policies aimed at increasing participation and upgrading in MNE-driven GVCs.     

Export Market Participation,Investments in R&D and Worker Training,and the Evolution of Firm Productivity

This paper uses micro panel data for firms in the Taiwanese electronics industry in 1986, 1991 and 1996 to investigate a firm's decision to invest in two sources of knowledge – participation in the export market and investments in R&D and/or worker training – and assess their effect on the firm's future productivity. The firm's decisions to export and invest in R&D and/or worker training are modelled with a bivariate probit model that recognises the interdependence of the decisions. The effect of these investments on the firm's future productivity trajectory is then modelled while controlling for the selection bias introduced by endo‐genous firm exit. The findings indicate a significant interaction effect between exporting and R&D investments and future productivity, after controlling for size, age and current productivity. Firms that undertake both investment activities have significantly higher future productivity than firms that do one or neither. In addition, these firms are more likely to continue investing in these activities leading to further productivity gains. These findings are consistent with the hypothesis that export experience is an important source of productivity growth for Taiwanese firms and that firm investments in R&D and worker training facilitate their ability to benefit from their exposure to the export market.     

Moving up or moving out? A unified theory of R&D, FDI, and trade

This paper introduces industrial heterogeneity in R&D productivity into the quality-ladder model of the North-South trade to study how firms' choices made between R&D and foreign direct investment (FDI) vary across industries, and how such choices consequently determine the evolution of comparative advantage and trade. It shows that trade reveals product-cycle dynamics in medium-tech industries but remains static in others. High-tech industries experience continued innovation in the North with no migration of product lines. Medium- and low-tech industries migrate South via FDI to exploit low production costs with the South then replacing the North as the dominant exporter. However, medium-tech industry production eventually shifts back to the North when superior products are marketed by Northern innovators, making the end of one complete product cycle and the start of the next. Because of marginal R&D productivity, the relocated low-tech industries are not presented with the option of moving up and thus stagnate.     

Regional integration and technology diffusion: The case of Uruguay

We examine the impact of trade-related R&D spillovers from the country's partners in the MERCOSUR as well as from the European Union and NAFTA blocs and the rest of the world on total factor productivity for the Uruguayan case at the industry level, for the period 1988–95. Furthermore, we analyse the impact of domestic R&D in Uruguay. There is an evidence of trade-related technology diffusion from MERCOSUR partners to Uruguay, although domestic R&D has apositive impact on productivity. Thus, policies aimed to promote domestic R&D and decreasing trade barriers could enhance Uruguayan manufacturing productivity.     

Enthusiasm Constrained? British Industrial R&D and the Transition from War to Peace, 1942–51

During the second half of World War II and in the years which immediately followed, British firms demonstrated a considerable enthusiasm for expanding their R&D activities. Severe restrictions on the availability of resources limited the extent to which this could be translated into practice, but many firms nonetheless managed to achieve rapid growth in the scale of their R&D facilities. Drawing on a range of archival sources generated by both government and industry, this article examines the nature of this enthusiasm and how it was shaped by the need to conform to controls on building, defence requirements, including the National Service ‘call up’, and the investment priorities determined in response to the export drive. These constriants not only underprinned the development of industrial R&D during the transition from war to peace, they also helped to ensure that British managers retained their belief that ever more R&D would ensure industrial success.     

Overcoming the double hurdles to investing in technology

Technological activities of small and medium-sized enterprises (SMEs) have received considerable attention from researchers and policy makers since the mid-1980s. Small firms could nurture entrepreneurship and facilitate the creation and application of new ideas. In spite of their potential in generating innovations, it is also observed that SMEs shy away from formal R&D activities, and the firm size itself seems to be a barrier for R&D activities. SMEs operating in developing countries face extra hurdles to investing in R&D. Given the massive share of SMEs, it becomes crucial to realize their developmental potential in developing countries. In this paper, we study the drivers of R&D activities in SMEs in Turkish manufacturing industries by using panel data at the establishment level for the 1993–2001 period. Our findings suggest that SMEs are less likely to conduct R&D, but if they overcome the first obstacle of conducting R&D, they spend proportionally more on R&D than the LSEs do. R&D intensity is higher in small than in large firms. Moreover, public R&D encourages firms to intensify their R&D efforts. The impact of R&D support is stronger for small firms.     

The impact of public R&D subsidy on small firm productivity: evidence from Korean SMEs

This paper explores the effects of R&D promotion policy on SME performance. We use a large panel data set on public R&D subsidies to Korean manufacturing firms. We control for counterfactual outcomes employing the DID (difference in differences) estimation procedure as well as for the endogeneity of the R&D investment and the R&D subsidy using the 2-stage Tobit/Logit DPD (dynamic panel data) procedure. We find significant evidence for positive effects of the public R&D subsidy on both the R&D expenditure and the value added productivity of Korean manufacturing SMEs. The policy thus appears to have been successful in fostering technological advancement and in promoting economic growth.     

Evaluation of credit guarantee policy using propensity score matching

In this article, we evaluate the effect of the credit guarantee policy by comparing a large sample of guaranteed firms and matched non-guaranteed firms from 2000 to 2003. The sample firms are compared with respect to growth rates of different performance indicators including: productivity, sales, employment, investment, R&D, wage level, and the survival of firms in the post crisis period. In order to avoid the selectivity problem, propensity score matching methodologies are adopted. Results suggest that credit guarantees influenced significantly firms’ ability to maintain their size, and increase their survival rate, but not to increase their R&D and investment and hence, their growth in productivity. Moreover, due to the adverse selection problem, firms with lower productivity were receiving guarantees.     

R&D investments in family and founder firms: An agency perspective

Investments in R&D can influence a firm's ability to develop new products and to create and adopt innovative technologies that may enhance productivity. However, due to uncertainty regarding the outcome, investments in R&D may lead to an agency problem between the owners and the managers of a firm. Family and founder firms are often considered to be different in their agency situation than other firms, which may have an influence on R&D investments. This paper analyzes R&D spending in family and founder firms versus other firms. The results show that while family ownership decreases the level of R&D intensity, ownership by lone founders has a positive effect not only on R&D intensity but also on the level of R&D productivity. The paper contributes to the understanding of the role of entrepreneurship in making high risk/high return R&D decisions.     

The Impact of Foreign Technology and Embodied R&D on Productivity in Internationally Oriented and High-Technology Industries in Egypt, 2006–2009

This paper investigates the domestic productivity and spillover effects of foreign technology and embodied R&D on Egyptian manufacturing industries, 2006 to 2009. It also analyses the heterogeneous sectoral effects of technology transfer by focusing specifically on the productivity effects on highly internationalized and technology-intensive industries. These are expected to have greater absorptive capacity with respect to foreign technology and therefore larger productivity effects because of their greater exposure to foreign competition and greater technological capacity respectively. This study is the first to analyse the efficiency effects of foreign technology by classifying industries in this manner. It finds that foreign technology and embodied R&D have positive and significant industry-specific effects on domestic productivity and TFP in technology-intensive industries but that these are weaker in internationally oriented industries. The study suggests that only technological-intensive industries in Egypt have sufficient absorptive capacity to assimilate foreign technology effectively. The paper’s findings highlight the key role of foreign technology in domestic productivity growth, subject to the absorptive capacity of the domestic labour force, and the need for improved policies to promote the domestic benefits of technology transfer through the accumulation of local technological competences.

     

Innovation and trade with heterogeneous firms

This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. Among the robust results that hold both in the short run when there is no entry, and in the long run under free entry are that trade liberalization increases aggregate R&D when trade costs are low and decreases R&D when trade costs are high. Expected industry productivity rises as trade costs fall.