The impact of R&D spillovers on UK manufacturing TFP: A dynamic panel approach

One of the benefits claimed for investment in Research and Development (R&D) is that there is a spillover effect. Industries benefit from both their own R&D efforts as well as the efforts of other national and overseas industries. The present research presents new evidence on the long-term impact of R&D investment upon UK industry's productivity performance and on the nature of these “R&D spillovers”. The results suggest that R&D efforts from the industry itself and from other national industries have a positive impact on the industry's productivity but, interestingly, there is no gain from foreign R&D investment.     

Firm R&D investment and export market exposure

We study differences in the returns to R&D investment between German manufacturing firms that sell in international markets and firms that only sell in the domestic market. Using firm-level data for five high-tech manufacturing sectors, we estimate a dynamic structural model of a firm's discrete decision to invest in R&D and use it to measure the difference in expected long-run benefit from R&D investment for exporting and domestic firms. The results show that R&D investment leads to higher rates of product and process innovation among exporting firms and these innovations have a larger economic return in export market sales than domestic market sales. As a result of this higher payoff to R&D investment, exporting firms invest in R&D more frequently than domestic firms, and this endogenously generates higher rates of productivity growth. We use the model to simulate the introduction of export and import tariffs on German exporters, and find that a 20 % export tariff reduces the long-run payoff to R&D by 24.2 to 46.9 % for the median firm across the five industries. Overall, export market sales contribute significantly to the firm's return on R&D investment which, in turn, raises future firm value, providing a source of dynamic gains from trade.     

Technology acquisition channels and industry performance: An industry-level analysis of Chinese large- and medium-size manufacturing enterprises

Through an industry-level analysis of Chinese large- and medium-size manufacturing enterprises over the period of 1996-2001, this article investigates the direct and interactive contributions of four technology acquisition channels to industry performances in terms of innovation performance and productivity. These channels include in-house R&D, foreign technology transfer, domestic technology transfer, and inter-industry R&D spillover. We have found evidence of an important role of inter-industry R&D spillover in shaping and improving industry performance in China, which has been neglected by previous empirical studies concerned with Chinese industrial firms. The empirical results indicate that inter-industry R&D spillover and foreign technology transfer make significant contributions to both labour productivity and the level of total factor productivity in Chinese manufacturing industries. We have also found that in-house R&D and inter-industry R&D spillover share a complementary relationship in shaping innovation performance and total factor productivity in Chinese industry, and that in-house R&D relates to foreign technology transfer as a complement for labour productivity. Finally, on the mixed results among existing literature in the context of developing countries, this article argues that the commonly followed strategy in technology development, combined with government regulations, will play an essential role in determining the relationship between in-house R&D and foreign technology transfer.     

Technological similarity,post-acquisition R&D reorganization,and innovation performance in horizontal acquisitions

This paper aims to disentangle the mechanisms through which technological similarity between acquiring and acquired firms influences innovation in horizontal acquisitions. We develop a theoretical model that links technological similarity to: (i) two key aspects of post-acquisition reorganization of acquired R&D operations – the rationalization of the R&D operations and the replacement of the R&D top manager, and (ii) two intermediate effects that are closely associated with the post-acquisition innovation performance of the combined firm – improvements in R&D productivity and disruptions in R&D personnel. We rely on PLS techniques to test our theoretical model using detailed information on 31 horizontal acquisitions in high- and medium-tech industries. Our results indicate that in horizontal acquisitions, technological similarity negatively affects post-acquisition innovation performance and that this negative effect is not mediated by the reorganization of the acquired R&D operations. However, replacing the acquired firm's R&D top manager leads to R&D productivity improvements that positively affect innovation performance.     

Modelling the joint impact of R&D and ICT on productivity: A frontier analysis approach

This study explores the channels through which technological investments affect productivity performance of industrialized economies. Using a Stochastic Frontier Model (SFM) we estimate the productivity effects of R&D and ICT for a large sample of OECD industries between 1973 and 2007, identifying four channels of transmission: input accumulation, technological change, technical efficiency and spillovers. Our results show that ICT has been particularly effective in reducing production inefficiency and in generating inter-industry spillovers, while R&D has raised the rate of technical change and favoured knowledge spillovers within sectors. We also quantify the contribution of technological investments to output and total factor productivity growth documenting that R&D and ICT accounted for almost 95% of productivity growth in the OECD area.     

Does local knowledge spillover matter for firm productivity? The role of financial access and corporate governance

Global productivity growth has either stagnated or declined, despite continued technological innovations with the rise of knowledge-intensive intangibles that arise from the growth of knowledge stock (R&D activities). Understanding the root causes of this paradox in the context of growing economies requires an investigation of whether local knowledge diffusion can explain firm-level productivity differences, including key constraining factors like sources of financing or corporate governance structure. Using financial data of 7970 Indian firms over a 20-year period and clustering firms across industries, we assess the impact of R&D stock that is external to the firm through estimating both within (intra) and between (inter) industry spillovers. We find that both R&D and non-R&D-performing firms benefit from ‘between industry’ spillovers. We further show that firms with better access to finance achieve higher productivity, not only through their own R&D capital stock but also via both types of industry-level knowledge spillover. We allow for the two key sources of international spillovers namely import intensity and FDI. While import-intensive firms experience lower productivity, FDI mitigates this adverse productivity effect across knowledge-intensive exporting firms. The paper concludes that financially unconstrained firms and firms with greater corporate board connectedness derive positive industry-level spillover effects, reflecting intra- and inter-industry as domestic spillover or local value-chain effect in the literature on technological innovation.     

Evaluating R&D investment efficiency in China's high-tech industry

Research and development (R&D) investment activity plays a crucial role in developing high-tech industries. In recent decades, China has made sustained investments in its domestic high-tech industries, with the goal of increasing their productivity. This paper investigates the effect of this investment on relative R&D efficiency across China's high-tech sectors. Data Envelopment Analysis (DEA) was used to generate quantitative indices for sector comparisons. The analysis of this study indicates that overall R&D investment efficiency did not increase from 1998 to 2009, despite R&D expenditure increasing by 2188%. Over the same period, most sectors suffered from decreasing returns to scale (DRS), presumably also reflecting the inefficient R&D investment. Most of the sectors showed significant fluctuation on R&D investment efficiency. This research result indicates that the problem of China's high-tech industry may be from the inefficiency of its technology commercialization processes, and therefore represents a critical parameter for policy makers and managers.     

Is a higher rate of R&D tax credit a panacea for low levels of R&D in disadvantaged regions?

This paper studies the impact of R&D spending on output as well as forecasting the impact of a regionally enhanced R&D tax credit on the ‘user cost’ (or price) of R&D expenditure and subsequently the demand for R&D. The example we use of a ‘disadvantaged’ region is Northern Ireland (partly because it has the lowest levels of R&D spending in the UK, and partly because the necessary data is available for this region). We find that in the long run, R&D spending has a mostly positive impact on output across various manufacturing industries. In addition, plants with a zero R&D stock experience significant one-off negative productivity effects. As to the adjustment of R&D in response to changes in the ‘user cost’, our results suggest a rather slow adjustment over time, and a long-run own-price elasticity of around −1.4 for Northern Ireland. We also find that to have a major impact on R&D spending in the Province, the R&D tax credit would need to be increased substantially; this would be expensive in terms of the net exchequer cost.     

Specialisation precedes diversification: R&D productivity effects

We model how R&D enters the innovation system in four ways (intramural, extramural, cooperative, and spillover). Despite measuring three different spillovers together, for a very large sample of European enterprises we conclude that the productivity effects of spillovers were at best smaller than intramural R&D productivity effects. We also find that building on the greater skills and experience of enterprises already undertaking R&D (intensity) raised labour productivity more than providing support for those beginning R&D (extensity). Optimal extramural R&D intensity was higher than the actual level; sample firms could boost productivity either by abandoning extramural R&D or by doing much more. There were substantial differences in our sample between enterprises and countries in terms of R&D spillovers. Greater multinational corporation incidence in new EU members accounted for these countries' high direct R&D intensity productivity, regardless of their generally low overall labour productivity. Absorptive capacity made little difference to the utilisation of spillovers.     

Spillovers from publicly financed business R&D: some empirical evidence from Germany

This paper investigates the effects of interindustry R&D spillovers from publicly financed business R&D on private R&D efforts and productivity using data of West German manufacturing industries. The results suggest that it is important to distinguish between the effects of spillovers from privately and publicly financed business R&D. In particular, estimation results provide evidence of productivity-enhancing effects of spillovers from privately financed R&D while results are less clear-cut for publicly financed R&D. Moreover, there is some empirical evidence that private R&D efforts of higher-technology industries are stimulated by spillovers from privately financed R&D but not by spillovers from publicly financed R&D. However, public funding of R&D in higher-technology industries seems to induce private R&D investments within these industries.     

Are new technology-based firms located on science parks really more innovative?: Evidence from Taiwan

The establishment of science parks is employed as a vital strategy for developing high-tech industries in many countries. Whether new technology-based firms (NTBFs) located within science parks are, in comparison to their counterparts located outside of science parks, more efficient in terms of R&D investment remains less explored. The purpose of this paper is to compare the R&D productivity of NTBFs located within and outside of science parks by measuring the elasticity of R&D with respect to output. Using panel data for NTBFs located within and outside the Hsinchu Science Industrial Park (HSIP) in Taiwan, our empirical findings show that the elasticity of R&D with respect to outputs of NTBFs located within HSIP is significantly higher than that of other firms. These findings further reveal that NTBFs located in the science park invest more efficiently. Our results also indicate a slight advantage in R&D for firms in the science park, arising from the fact that the science park offers a clustering effect and establishes links among firms and research institutions.     

R&D price indexes and real R&D expenditures in the United States

The rate of inflation in R&D is very difficult to measure. The official government statistics in the United States use the GNP deflator to deflate R&D expenditures. Little is known about the extent to which price indexes for R and D inputs, if they were constructed in various industries, would differ from the GNP deflator. This paper reports the findings of a study that attempts to fill this important gap. Laspeyres price indexes are presented both for R and D inputs and for inputs used in other stages of the innovation process. Also, price indexes for R and D inputs are constructed, assuming that the relevant production function is Cobb-Douglas. On the basis of the results, we estimate the extent and direction of the errors in the official R&D statistics due to the use of the GNP deflator.Our findings, based on detailed data obtained from firms accounting for about one-ninth of all company-financed R&D in the U.S., indicate that the GNP deflator underestimated the rate of price increase for R&D inputs during 1969–1979 in practically every industry we studied. The bulk of the apparent increase in real R&D in these industries (which was relatively modest in any event) seems to have been due to the inadequacies of the GNP deflator. One important moral seems to be that more attention and resources should be devoted to the construction of better price indexes for R&D.     

Does being R&D intensive still discourage outsourcing?: Evidence from Dutch manufacturing

Being R&D intensive has traditionally been seen as an impediment to outsourcing. This study confirms that empirically this was the case for a set of manufacturing industries in The Netherlands in the early 1990s, but also shows that R&D intensity became a positive predictor for changes in outsourcing levels over the 1990s, suggesting firms in R&D intensive industries have increasingly started to rely on partnership relations with outside suppliers. This confirms the need to move the analysis from scale, opportunism and appropriation concerns to a relational perspective when studying outsourcing in R&D intensive industries.     

Does R&D performance decline with firm size?—A re-examination in terms of elasticity

There have been many previous studies exploring the relationship between R&D performance and firm size; however, to our knowledge, this issue has never been examined in terms of R&D output elasticity. This paper therefore sets out to re-examine the relationship of the two variables using R&D output elasticity as a measure of R&D performance. A total of 126 manufacturing firms, listed on the Taiwan Stock Exchange over the period from 1994 to 2000, are taken as the analytical sample. One practical consideration for choosing these particular firms is the relative abundance of data available for the variables for a longitudinal investigation. The estimates suggest that there is an approximating ‘U-type’ relationship between R&D productivity and firm size. This finding suggests that both large and small firms have higher R&D productivity, and even when the sample is divided into the high-tech and traditional sectors, such a finding still holds. Therefore, in contrast to the prior studies, this study shows that size offers advantage in R&D performance.     

Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states

Defense R&D represents the largest component of US public R&D spending and historically has promoted a wide range of civilian innovations. However, the empirical evidence on the impact of defense R&D is scant and it does not provide conclusive results on the possible crowding-in (-out) effects on private R&D investment. Exploiting a longitudinal dataset linking public R&D obligations to private R&D expenditures for US states, we investigate the impact of defense R&D on privately-financed R&D. To address potential endogeneity in the allocation of funds, we use an instrumental variable identification strategy leveraging the differential exposure of US states to national shocks in federal military R&D. We document considerable crowding-in effects with elasticities in the 0.11–0.14 range. These positive effects extend also to the labor market, when focusing on employment in selected R&D intensive industries and especially for engineers.     

The impact of patent protection and financial development on industrial R&D

Stronger protection of patent rights is thought to spur innovation through securing returns to R&D investments. Those investments must be financed, however, suggesting that the responsiveness of R&D to patent reforms varies with financial development levels. We examine the joint impact of domestic and international financial-market development and patent protection on R&D intensities in 22 manufacturing industries in 20 OECD countries for the period 1990-2009. We show that stronger patent rights increase R&D intensities in patent-intensive industries, accounting for the need for external financing and the amount of tangible assets. The primary impact varies across types of financial development: patent protection raises R&D in high-patent industries where countries have more limited equity and credit markets. In contrast, in countries with more developed bond markets industry R&D is more sensitive to patent rights. Interestingly, patent rights in countries that are more exposed to foreign direct investment increase R&D intensities at all levels of financial development.     

Complementarities of innovation activities: An empirical analysis of the German manufacturing sector

Innovation strategies in manufacturing often involve internal R&D activities as well as external partnerships. Thereby it is not clear if internal and external activities are complements or substitutes. This paper tests for complementarity of different innovation activities, i.e. internal R&D, R&D contracting, and R&D cooperation. The empirical analysis of cross-sectional firm level data of the German manufacturing sector comprises both indirect and direct complementarity tests; it is based on data from the German part of the Community Innovation Survey (CIS 3). The results provide evidence for significant complementarities between internal R&D and R&D cooperation, but cast doubt on the complementarity of internal and contracted R&D, since a productivity effect on firms’ patenting probability or sales with new products cannot be found.     

R&D strategies and entrepreneurial spawning

This paper analyzes how different R&D strategies of incumbent firms affect the quantity and quality of their entrepreneurial spawning. When examining entrepreneurial ventures of ex-employees of firms with different R&D strategies, three things emerge: First, firms with persistent R&D investments and a general superiority in sales, exports, productivity, profitability and wages are less likely to generate entrepreneurs than firms with temporary or no R&D investments. Second, start-ups from knowledge intensive business service (KIBS) firms with persistent R&D investments have a significantly increased probability of survival. No corresponding association between the R&D strategies of incumbents and survival of entrepreneurial spawns is found for incumbents in manufacturing sectors. Third, spin-outs from KIBS-firms are more likely to survive if they start in the same sector, indicating the importance of inherited knowledge. These findings suggest that R&D intensive firms are less likely to generate employee start-ups, but their entrepreneurial spawns tend to be of higher quality.     

Characteristics of research and development performing firms in Canadian manufacturing

The purpose of this paper is to examine some of the salient characteristics of R&D performing firms in Canadian manufacturing. The paper begins by presenting a brief overview of recent trends in R&D in the Canadian economy. The next section analyzes the main characteristics of those firms which undertake research and development activities in Canadian manufacturing industries. Various aspects are examined in this section including the R&D expenditure patterns of industries in the research-intensive and non-research-intensive sectors, R&D by size of firm and by size of program, levels of R&D intensity in terms of small, medium and large R&D performing firms. The importance of foreign ownership and its implication for the level of R&D activity is also considered. The paper concludes by summarizing the highlights of R&D performing firms and draws some implications for the structure of Canadian manufacturing based on the findings.     

Beyond formal R&D: Taking advantage of other sources of innovation in low- and medium-technology industries

This study deepens our knowledge of critical success factors in the innovation process of low- and medium-technology (LMT) industries. To accomplish this, it explores how the innovation process in LMT firms may depend on non-formal R&D activities and the use of external sources. The empirical analysis is based on a representative panel of Spanish manufacturing firms. The results strongly support the view that non-R&D activities such as design, the use of advanced machinery and training are crucial to understanding the innovation process of any firm. The study finds, however, that the impact of these activities is especially important in LMT industries, particularly for the achievement of product innovations. The empirical evidence also reveals the importance of external sources such as the use of consultants, the hiring of personnel, collaboration agreements and external R&D, with the greatest differences between LMT and high-technology (HT) firms being observed in process innovations.