Quantitative growth effects of subsidies in a search theoretic R&D model

Should government subsidize R&D and does it matter how these subsidies are allocated? We examine these questions in a dynamic model where R&D is described as sequential sampling from a distribution of new ideas. Successful discoveries affect future available resources and incentives for further R&D. Consequently, there may be under-investment in R&D. We study the effect of government interventions aimed at fostering growth through R&D. Calibrating the model with aggregate data from the Israeli business sector allows us to quantitatively compare two forms of support resembling those actually used to encourage R&D in the Israeli business sector: (i) an unrestricted subsidy that may be used at the recipients' discretion to finance R&D or other investments, (ii) a subsidy earmarked by the government for R&D activities only. While there is no theoretical way to determine which of the two subsidies will have a greater impact on search for new ideas and growth, we find that in the calibrated economy both subsidies have a significant but similar impact on the economy's output and TFP growth rates. Accordingly, in the case of the Israeli business sector, the incentives to conduct R&D were sufficiently strong, and no R&D-specific encouragement was needed. However, a sensitivity analysis reveals that for economies characterized by other parameter values this result may not be true. Correspondence to: B. Bental     

The determinants of pharmaceutical research and development expenditures

Since the late 1970s, pharmaceutical R&D has grown at a rapid rate relative to sales and other variables. In this paper, we examine the determinants of pharmaceutical R&D using a pooled data sample of 11 major drug firms over the period 1974 to 1994. We find that expected returns and cash flows are important explanatory variables of firm research intensities during this period. This is consistent with our results for an earlier sample period characterized by very different growth patterns on R&D.     

A simple theory and evidence on the determinants of firm R&D

This paper derives a simple, but informative, model of firm R&D to figure out key factors that determine firm R&D effort. The model suggests a demand-pull, technology-push theory of R&D by showing that a firm's profit-maximizing R&D expenditure is determined jointly by both demand-side factors and technology-side factors. The former includes demand size (firm sales) and consumer preference over quality and price and the latter includes R&D cost structure or the production-cost effect of product R&D and firm-specific technological competence. In addition, the model shows that other things being equal, the stock of exogenous technological knowledge, including the firm's previously accumulated technological knowledge, relevant to current R&D which is negatively related with current R&D effort. An empirical analysis of firm R&D intensities and technological capabilities of more than 1600 firms in nine industries across six countries provides supportive evidence for the theory. Further, the theory implies that R&D intensity or the R&D-to-sales ratio is independent of firm size unless firm size affects technological competence and that given consumer preference and R&D cost structure facing all firms in the same industry, the distribution of firm-specific technological competence among firms determines the distribution of firm R&D intensities within the industry.     

Innovation, international technological diffusion and the changing influence of R&D on productivity

This paper analyses the relationship between OECD countries'business sector total factor productivity and domestic and foreignR&D efforts during the period 1961-1991. A sensitivity analysisis performed by making use of alternate estimations of specificationsin growth terms and in level terms. The results are shown tobe robust. They show that the influence of international technologicaldiffusion is, on average, substantially stronger than that ofdomestic R&D. In the case of the large economies, however,the latter influence is found to be more important. A structuralstability analysis provides evidence of a decrease in the estimatesin the mid-1970s, without significant recovery afterwards. Variouslong-run supply effects appear to have contributed. The discontinuousnature of the reduction does indicate, however, that these werereinforced by macroeconomic disturbances at the demand side.     

R&D intensity,financing cost and antidumping

Existing studies have established a stylized fact that worldwide antidumping (AD) activity is concentrated in R&D intensive industries. We build on this issue and analyse the effect of the interaction between financing costs and R&D intensity on AD practices using cross-country cross-industry data. Our findings suggest that R&D intensive industries file disproportionately more AD investigations when financing cost is high.     

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.     

Measuring knowledge intensity in manufacturing industries: a new approach

This article presents the methodology and results for measuring the knowledge intensity of manufacturing industries based on the knowledge-related characteristics of their workforce. The measures link information from the Occupational Information Network project (from the US Department of Labor) and the Occupational Employment Statistics (from the Bureau of Labor Statistics) to produce industry-specific knowledge intensity measures. The new measures overcome the main issues posed by the industry-average R&D share in total sales variable, often used as a proxy for knowledge intensity in the literature.     

The determinants of internationalization: Evidence from the Taiwan high technology industry

This paper employs the logit model to explore the relationship between internationalization and its determinants. Using a sample set gathered from 114 high technology firms of Taiwan, which are mostly engaged in original equipment manufacturing, empirical tests of the hypotheses find support that corporate governance, patent counts, and education level of managers had a positive effect on internationalization. Surprisingly, R&D intensity, one of the innovation capitals, had a negative effect on internationalization.     

Multimarket contact and inter-firm cooperation in R&D

Research joint ventures (RJVs) have been widely acclaimed for their alleged ability to restore private incentives to undertake R&D. Economists have, however, also sounded the alarm concerning the opportunities RJVs may create for collusion between partners. The danger of anti-competitive behavior increases significantly when repeated R&D collaboration occurs between firms that also “meet” in many product markets. This phenomenon is shown to be present in a large set of U.S.-based RJVs. The question is about the incentive trade-off: Are the alleged advantages of RJVs in terms of enhancing incentives for R&D sufficient to overcome the potential disadvantages in terms of decreasing incentives for R&D due to simultaneous multiproject and multimarket contact? Significant foreign participation, high technological and market uncertainties, and the set up of “porous” RJVs may operate as a check to anti-competitive behavior.     

Capitalism, profits and innovation in the new techno-economic paradigm

Innovative profits (of the kind conceptualized by Schumpeter) are today being increasingly created through international corporate networks for technological development. Such profits through innovation are encouraged by newer more flexible organizational forms, and further encouraged (unlike in the conventional perspective on profits and on the incentive to innovate) by knowledge flows between firms. Our empirical evidence, based on US patent data, shows that multinational companies are currently more likely to develop abroad technologies which are less science-based, and less dependent upon tacit knowledge. However, within the science-based industries firms may generate abroad some technologies which are heavily dependent on tacit knowledge, but normally in fields that lie outside their own core technological competencies. We find some evidence of a convergence in corporate technological diversification across large firms, facilitated by the now common spread in the use of information and communication technologies (ICT) as an integrator of formerly separate technological systems. This has led smaller firms to diversify, but giant firms to consolidate activity around those technologies that have become most interrelated.     

R&D spillovers and productivity: Evidence from U.S. manufacturing microdata

This paper deals with the estimation of the impact of technology spillovers on productivity at the firm level. Panel data for American manufacturing firms on sales, physical capital inputs, employment and R&D investments are linked to R&D data by industry. The latter data are used to construct four different sets of `indirect' R&D stocks, representing technology obtained through spillovers. The differences between two distinct kinds of spillovers are stressed. Cointegration analysis is introduced into production function estimation. Spillovers are found to have significant positive effects on productivity, although their magnitudes differ between high-tech, medium-tech and low-tech firms. First version received: April 1997/final version received: April 1999     

Schumpeter and Steindl on the dynamics of competition

This paper compares and contrasts the contributions of Joseph Alois Schumpeter and Josef Steindl to the competitive paradigm. Both reject the static nature of traditional profit maximizing analysis and the analytical device of a representative firm. Instead they both opt for a dynamic framework in which there is a key role for innovation. Differences emerge in terms of the characteristics of individual firms that nurture the competitive struggle and are responsible for technical change. The maturation process of a capitalist economy, whereby a natural progression will involve an increase in concentration, as prescribed by Schumpeter and Steindl is also explored, as is criticism of their analyses. Finally the holistic approach to competitive modelling, a legacy of these two economists, is expounded and challenges for the future identified.     

R&D competition, absorptive capacity, and market shares

This paper deals with an oligopolistic industry where firms are engaged in cost-reducting R&D activity to maximize their market shares. The existence and uniqueness of a feedback-Nash-optimal R&D strategy for each firm are discussed. Our simulations highlight that variations in spillovers hardly influence the firms' R&D investment, if their absorptive capacities to exploit extramural knowledge depend on their R&D efforts. Moreover, extramural knowledge cannot completely replace in-house R&D. However, a high level of public R&D favors the firm with the most restrictive R&D expenditure constraint and/or with the lowest initial R&D stock, provided it invests in R&D.     

Multistage R&D competition and patent policy

In this paper a model of multistage R&D patent policy is investigated. We study the impact of the duration of patent protection for intermediate products on R&D races when the discovery of the final product requires the accomplishment of an intermediate step. Using a multistage model where firms choose their levels of research investment at each stage, we find all subgame-perfect equilibria of the game. We also determine how competition affects a firm's level of research investment at different stages of the R&D competition.     

Uncertainty and the size distribution of rewards from innovation

 Previous research has shown that the distribution of profit outcomes from technological innovations is highly skew. This paper builds upon those detailed findings to ask: what stochastic processes can plausibly be inferred to have generated the observed distributions? After reviewing the evidence, this paper reports on several stochastic model simulations, including a pure Gibrat random walk with monthly changes approximating those observed for high-technology startup company stocks and a more richly specified model blending internal and external market uncertainties. The most highly specified simulations suggest that the set of profit potentials tapped by innovators is itself skew-distributed and that the number of entrants into innovation races is more likely to be independent of market size than stochastically dependent upon it.     

Do export and technological specialisation patterns co-evolve in terms of convergence or divergence? Evidence from 19 OECD countries, 1971–1991

Several researchers looking at the development of international export specialisation patterns have shown that there is a weak tendency for OECD countries to exhibit decreased levels of specialisation. This finding is in contrast to findings made by other authors, who found increasing technological specialisation. The first aim of this paper is to investigate whether these contradictory findings are due to a `real world' phenomenon, or whether the explanation is purely technical, by comparing the development of export specialisation to specialisation in terms of US patents, using the same methodology and level of aggregation. The second aim is to analyse the extent to which countries and sectors display stable specialisation patterns over time, also both in terms of exports and in terms of technology. The paper confirms that the OECD countries tend in general to become less specialised in terms of exports. The evidence is less conclusive with regard to technological specialisation, as the results are mixed in the sense that just about half of the countries tend to exhibit increased levels of specialisation, while the other half tend to exhibit lower levels of specialisation. In terms of country and sectoral stability of specialisation patterns, it can be concluded that both trade specialisation and technological specialisation patterns are path-dependent. In comparison, however, trade specialisation patterns are more stable than are technological specialisation patterns.     

R&D与生产率——基于中国制造业的实证研究

本文运用中国四位数制造产业数据对R&D与生产率之间的关系进行了实证检验。通过估计两种不同的生产函数模型,本文发现R&D对生产率有显著正影响。在控制了市场因素和产权因素的影响后,R&D与生产率之间仍旧表现出显著的正相关关系。本文还发现,R&D对生产率的促进作用也依赖于产业技术机会,高科技产业的R&D产出弹性显著大于非高科技产业的R&D产出弹性。     

Capitalism and democracy in the 21st century: a Kaleckian interpretation of a Schumpeterian problem

The paper reinterprets Schumpeter's views on the dynamic effects of taxation, as originally expressed in Crisis of the Tax State, from a Kaleckian perspective. In light of Schumpeter's rejection of Keynesian and Marshallian approaches to taxation, the paper argues that a recently developed Kaleckian approach provides an appropriate basis from which to analyse the effects on the business cycle of balanced changes in the structure of taxation. It is shown that, under certain shifting assumptions, increases in the taxation of wages or profits will stimulate investment and attenuate the amplitude of the business cycle. Ultimately, the shifting of taxes reduces to a conflict over income shares. The changing distribution of income in the United Kingdom in recent years suggests that investment is likely to remain sluggish unless there is a significant reversal of income shares. This may give rise to increasing economic and political tensions into the 21st century.     

Biodiversity and Optimal Policies Towards R&D and the Growth of Genetically Modified Crops

In this paper we provide a simple model illustrating the possible nature ofgovernment policy with regards to genetic modification, taking into accountits impact on the environment. We show that it is necessary not only tointervene in the growing of crops, but also to intervene in R&D througha tax on the adoption of new GM technology. Without intervention at bothlevels, both the cultivation of GM crops and the rate of innovation in GM willexceed their socially optimal levels.     

Cooperation and the efficiency of regional R&D activities

This paper investigates the relationship between the cooperativebehaviour of manufacturing establishments in a region and theefficiency of their R&D activities, using data for 11 Europeanregions. Some significant differences in the attitude towardsR&D cooperation as well as with regard to the efficiencyof R&D activities between the regions can be found. However,these two issues appear to a large degree to be empiricallyunrelated. Therefore, the role of R&D cooperation in regionalinnovation systems remains unclear.