Advertising, in-house R&D, and growth

This paper develops a quality-ladder model of endogenous growthto study the interplay between in-house R&D and combativeadvertising expenditure, and its implications for economic growth,firm size, and welfare. The analysis shows that, somewhat surprisingly,higher incentives to engage in advertising, although combative,unambiguously foster innovation activity of firms. This, possibly,leads to faster growth and even higher welfare. These resultsrest on two features of the model which are well-supported byempirical evidence. First, if firms incur higher sunk costsfor marketing, concentration and firm size rise. Second, firmsize and R&D expenditure are positively related as largerfirms are able to spread R&D costs over higher sales. Theanalysis also suggests that R&D subsidies are conduciveto R&D and growth without inducing firms to raise advertisingoutlays.     

Do R&D tax incentives work? Firm-level evidence from China

Tax incentives have been used worldwide to encourage firm R&D, but there is little evidence on their effectiveness as a policy tool in developing countries. We use a panel dataset of Chinese listed companies covering 2007 to 2013 to assess the effects of tax incentives on firm R&D expenditures and analyze how institutional conditions shape these effects. Our results show that tax incentives motivate R&D expenditures for our sample firms. A 10% reduction in R&D user costs leads firms to increase R&D expenditures by 3.97% in the short run. We also find considerable effect heterogeneity: Tax incentives significantly stimulate R&D in private firms but have little influence on state-owned enterprises' R&D expenditures. Moreover, the effects of tax incentives are more pronounced for private firms without political connections. Hence, reducing political intervention complements tax incentives' capacity to foster firm R&D in developing countries.     

Inequality in healthcare R&D outcomes: a model of process disruption

ABSTRACT

The developing world has substantively different healthcare research and development (R&D) needs than the developed world. In this paper it is argued that healthcare inequality is primarily an outcome of the incentives of an innovation system that privileges wealthy markets. Given the difficulties inherent in challenging these incentive structures, it might be the R&D process itself (rather than its incentive structures) that, if disrupted, may ultimately improve access to R&D outcomes for poor populations. The objective of this paper is to spur novel thinking about the problem of healthcare inequality by developing a provocative conceptual model of healthcare R&D process disruption, based on the application of novel technologies to the research process itself, to radically lower the costs of R&D. The model developed here suggests that healthcare inequality might ultimately be mitigated by substantial reductions in time and cost in the biomedical R&D process made possible by novel technologies.     

The effects of product liability costs on R&D with asymmetric information

This paper examines the effects of product liability costs on R&D with asymmetric information. When the product is defective, both the consumer and producer share the resulting losses. This paper explores the impacts of liability costs on the firm’s R&D decisions in three information structures: full information; hidden information; and hidden information and hidden action. It is found that the effects differ across information structures. This paper also compares the equilibrium amounts of R&D and social welfare levels across three cases. Equilibrium R&D is smaller than the socially optimal level for each information structure.     

The Financing of Research and Development

Evidence on the ‘funding gap’ for R&D is surveyed.The focus is on financial-market reasons for under-investmentin R&D that persist even in the absence of externality inducedunder-investment. The conclusions are that (i) small and newinnovative firms experience high costs of capital that are onlypartly mitigated by the presence of venture capital; (ii) evidencefor high costs of R&D capital for large firms is mixed,although these firms do prefer internal funds for financingthese investments; (iii) there are limits to venture capitalas a solution to the funding gap, especially in countries wherepublic equity markets are not highly developed; and (iv) furtherstudy of governmental seed capital and subsidy programmes usingquasi-experimental methods is warranted.     

A Duality Between Cost-Reducing R&D versus Quality-Improving R&D and Welfare Analysis in a Hotelling Model

Two versions of research and development (R&D) activities in a Hotelling model with endogenous spillover effect, one with cost-reducing R&D and the other with quality-improving R&D, are analyzed in this paper. The result points out that two such kinds of R&D activities will share identical strategic properties, and that we shall be able to derive the equilibrium strategies of a quality-improving R&D model from those of a cost-reducing R&D model, and vice versa. It is found that the special market demand in a Hotelling model in fact plays a crucial role as well. This paper also provides a welfare analysis, the results of which show that government intervention via taxing the locations and subsidizing R&D efforts can remedy the market failure resulting from excess differentiation on locations and under-investment on R&D expenditures in non-cooperative equilibrium.     

Do innovation dimensions matter in China’s cross-regional income differences?

This paper studies the interlinks between innovation inputs and outputs and between innovation outputs and economic development. Using a panel data-set from 31 regions of China, we show that the difference in regional innovation output can be significantly explained by R&D manpower and expenditure, highly educated students, and public education spending, while GDP is linked to patent, high-tech export share, and new product sales. Our findings provide support for the use of government R&D subsidies and education rebate.     

R&D and patenting activities of foreign firms in China: The case of Japan

This study investigates the research and development (R&D) and patenting activities of foreign firms in China. Utilizing a panel dataset of Japanese affiliates during the period 2001–2007, we first examine the determinants of R&D activity and find that local market-oriented firms place more emphasis on R&D, whereas process export-oriented firms are less likely to conduct R&D. Affiliates within a large business group that has more affiliates have a higher propensity to undertake R&D. Using only firms with positive R&D expenditures, we next estimate the patent production function. Results indicate that the patent elasticity of R&D for Japanese affiliates is high, suggesting that they are more productive on patent production than other firms. Moreover, local market-oriented firms do need more patents to protect their products, whereas scientific firms demonstrate a lower willingness to register patents in China.     

Investigating the relationship between health and economic growth: Empirical evidence from a panel of 5 Asian countries

In this paper, we investigate the relationship between health and economic growth through including investment, exports, imports, and research and development (R&D), for 5 Asian countries using panel unit root, panel cointegration with structural breaks and panel long-run estimator for the period 1974–2007. We model this relationship within the production function framework, and unravel two important results. First, we find that in all four variants of the growth model, variables share a long-run relationship; that is, they are cointegrated. Second, we find that in the long-run, while health, investment, exports, EDRD (the interaction term between education and R&D), and R&D have contributed positively to economic growth, imports have had a statistically significant negative effect while education has had an insignificant effect. We draw important policy implications from these findings.     

Nanotechnology and the new technological revolution: Expectations and reality

This paper reviews the existing mechanisms of innovative development in the world economy focusing on emerging technologies markets evolution on the example of nanotechnology. The question has been raised of whether nanotechnologies can provide the core of the new technological revolution, and whether these prospects exist for NBIC convergence. In this connection the development of the global market for nano-enabled products following the 2007–2009 crisis and the reliability of the related development forecasts have been assessed. Particular attention has been paid to peculiarities of nanoenabled product market structure and the impact of stagnating R&D costs in the field of nanotechnology.     

Local land supply and fiscal incentives for R&D: Evidence from a quasi-natural experiment in China

Whereas numerous studies have evaluated the effects of public research and development (R&D) support programs and R&D tax incentives on private R&D, little is known about local governments' fiscal incentives for R&D. In this study, we build a conceptual framework to clarify the critical role of local land supply in relation to fiscal expenditure on R&D. We treat the establishment of China's nine Land Supervision Bureaus in 2006 as a quasi-natural experiment, and run a difference-in-differences regression to identify causality. The results show that local governments allocate more fiscal expenditure to R&D in response to land-use supervision, which monitors illegal land granting behaviors, and this effect is stronger in cities where leaders have higher political career incentives and cities with greater fiscal decentralization. Moreover, we find that land-use supervision increases the probability and scale of firms' access to government subsidies for R&D; thus, enhancing regional innovation capacity. Our findings document that China's land resource is a curse for its innovation-driven growth as it impedes local governments' fiscal incentives for R&D.     

The Innovation Threshold

Summary This paper discusses a model for analysing the sales of new products. This model accounts for the fact that, even among those companies with permanent R&D activities, a fraction of the firms did not have sales of innovative products over a two-year observation period. We propose a model in which the fixed costs of introduction are a major concern in the decision-making process. We apply a censored regression model, extended by a firm-specific threshold. We use a structural model to estimate the fixed costs of introducing new products to the market, and explain subsequent sales of innovative products. We examine an indicator of innovative output, i.e. the sales of products ‘new to the firm’. We estimate fixed cost thresholds by using data from the Dutch section of the Community Innovation Survey (CIS) of 1998. R&D intensity, competition, and market structure all have a positive impact on the sales of new products. The most important factors that reduce the fixed cost threshold of introduction are product-related R&D investments, R&D subsidies, and knowledge spillovers. We would like to thank Geert Ridder, Alfred Kleinknecht and two anonymous reviewers for their valuable comments and discussion.     

Establishing science parks everywhere? Misallocation in R&D and its determinants of science parks in China

The establishment of science parks is a vital strategy to develop high-tech industries and facilitate innovations in China. The success of a science park depends heavily on its supportive environment, suggesting that it is hard to replicate everywhere, while China has established many science parks across regions in the past decade. This study evaluates the degree of misallocation in research and development (R&D) and its determinants across science parks in China. Based on an unbalanced panel data of 145 science parks for the period 2007–2014, we find that the overall R&D efficiency has decreased sharply since 2011 when China began to initiate many new science parks. The newly constructed science parks exhibit a lower R&D efficiency than their incumbent parks, suggesting a considerable misallocation in R&D resource caused by expanding science parks everywhere. We further investigate the determinants of R&D misallocation and find that park characteristics and environmental characteristics matter. Parks which are larger, older, and having a higher human quality experience a lower R&D misallocation. Parks with closer R&D collaboration with universities or research institutes, particularly with universities, exhibit a lower R&D misallocation.     

Services content of Japanese trade

This paper investigates the scale of direct and indirect services trade, or services content, in Japanese trade between 1985 and 1995 using data from Japanese input–output tables. The empirical analysis revealed that the services content reflected the characteristics of the Japanese economy. The scale of research and development (R&D) services in total services trade has been much higher throughout the period than has the scale of other services. The R&D services content of Japanese merchandise exports amounted to US$ 27.0 billion in 1995, 84.3 percent of which was channeled through machinery exports. The R&D services content of Japanese machinery exports toward East and Southeast Asia grew rapidly, especially toward ASEAN countries. Our results confirm the importance of the traded-related international R&D spillovers.     

Is R&D cash flow sensitive? Evidence from Chinese industrial firms

We hypothesize that research and development (R&D) is sensitive to cash flow fluctuations due to asymmetric information and agency problems in the credit market. We adopt a variant of the Q model for R&D investment using the value of the firm, physical capital and employment to capture firm fundamentals as proxies for investment opportunities. We add cash flow to this specification, and estimate the augmented model separately for R&D participation and spending decisions using data on Chinese industrial firms for the period 2001–2006. We find that R&D participation and spending are sensitive to cash flow fluctuations, conditional on firm fundamentals. We also find that the cash flow sensitivity of R&D varies across firms depending on ownership.     

R & D decisions under alternative regulatory constraints

IV. Summary and Conclusions The purpose of this paper has been to extend the range of consequences implied by government regulation of privately owned firms. The analytical framework of Section II concentrated on deriving the implications of alternative degrees of regulation on the firm's research and development (R&D) decisions. The analysis implies that managers of stringently regulated firms have greater incentive to neglect such activities related to the search for and production of valuable market information which increases owners' wealth. Among other things, this implies that firms subject to more restrictive regulatory climates are more likely to commit fewer expenditures to R&D activities.Empirical evidence from the electric power industry was presented in Section III. The results indicate that the interfirm differences in R&D expenditures in this industry can be explained to a large extent by the variability of governmentally imposed regulatory constraints. After controlling for other determinants of R&D behavior, the evidence reveals that electric power firms subject to the most restrictive regulatory constraints do significantly (at the 5 percent level and better) less R&D than firms operating under the weakest regulatory constraints.This paper is based on the author's master's thesis, submitted to George Washington University in May 1976. I gratefully acknowledge the helpful comments and suggestions of Louis DeAlessi and Robert Goldfarb.     

Does an R&D tax credit affect R&D expenditure? The Japanese R&D tax credit reform in 2003

To what extent does a tax credit affect firms’ R&D activity? What are the mechanisms? This paper examines the effect of R&D tax credits on firms’ R&D expenditure by exploiting the variation across firms in the changes in the eligible tax credit rate between 2000 and 2003. Estimating the first-difference equation of the linear R&D model by panel GMM, we find the estimated coefficient of an interaction term between the eligible tax credit rate and the debt-to-asset ratio is positive and significant, indicating that the effect of tax credit is significantly larger for firms with relatively large outstanding debts. Conducting counterfactual experiments, we found that the aggregate R&D expenditure in 2003 would have been lower by 3.0–3.4 percent if there had been no tax credit reform in 2003, where 0.3–0.6 percent is attributable to the effect of financial constraint, and that the aggregate R&D expenditure would have been larger by 3.1–3.9 percent if there had been no cap on the amount of tax credits, where 0.3–0.8 percent is attributable to relaxing the financial constraint of firms with outstanding debts.     

Subsidizing R&D Cooperatives

A framework is developed with which the implementation of two commonly used R&D-stimulating policies can be evaluated: providing R&D subsidies and sustaining the formation of R&D cooperatives. Subsidized R&D cooperatives can also be analyzed. The analysis shows that providing R&D subsidies is more effective in raising private R&D investments than sustaining R&D cooperatives. Moreover, optimally subsidizing cooperative R&D or noncooperative R&D leads to the same level of R&D activity. Sustaining R&D cooperatives thus appears to be a redundant industrial policy, all else equal.     

安徽省R&D投入与GDP增长关系实证分析

目前,运用R＆D指标体系分析国家或地区的科技竞争力以及经济发展潜力,进而将分析结果作为制定科技和经济发展战略的重要参考依据,已经被越来越多的国家或地区所广泛采用。随着市场经济竞争的不断加剧,经济增长对科研活动领域的创新发展要求越来越高,研发投入也越来越大。基于安徽省第二次R＆D资源清查公报,结合安徽全省及各地区2000--2010年间R＆D投入与GDP的相关统计数据,首先采用协整回归分析方法对安徽全省R＆D经费支出与GDP间的关联性进行实证分析,得出研发投入对经济增长具有显著的促进作用的结论,然后在此基础上以定量描述的方式对安徽省各地区的R＆D投入水平与GDP增长率进行聚类分析。最后根据聚类分析结果及各地区的发展现状给出相关结论。     

Product Reliability,R&D,and Manufacturing Cost Shocks

Suppose a firm’s research and development (R&D) improves product reliability which in turn decreases the cost of product failure for both the firm and its customers. The primary research question of the paper is how a firm with market power optimally adjusts its R&D if it experiences a manufacturing cost shock. Our model suggests that a manufacturing cost shock prompts the firm to do less R&D in the cases where the replacement cost is low or the marginal manufacturing cost is high. Conversely, if the replacement cost is high and the marginal manufacturing cost is low, then the firm increases R&D, mitigating some of the increase in the manufacturing cost. The paper also compares the outcomes for reliability, profits, consumer surplus, and social surplus for the optimal R&D case as compared to the case of doing no R&D, paying particular attention to how exogenous changes in the marginal manufacturing cost affect this comparison.