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A cost-benefit analysis of R&D and patents: Firm-level evidence from China

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  • Chen, Zhiyuan
  • Zhang, Jie
  • Zi, Yuan

Abstract

We extend the empirical framework by Peters et al. (2017) to include both R&D and patents in the productivity evolution. We provide a decomposition of the benefits of R&D into the patent and non-patent components, and a novel measure of the patent value conditioning on the firm’s R&D investment. Using a sample of Chinese high-tech manufacturing firms, we find that (1) 47.8% to 67% of the benefits of R&D investment comes from non-patent R&D activities; (2) On average an invention (a utility model) patent causes around 0.76 (0.66) percent increase in the firm value; (3) The start-up costs of R&D are around ten times as large as the maintenance R&D costs. The counterfactual analysis shows that the lump-sum subsidy is more effective than the proportional subsidy in increasing the expected firm value and innovation probability. R&D continuers respond more actively than the R&D starters to the R&D subsidy.

Suggested Citation

  • Chen, Zhiyuan & Zhang, Jie & Zi, Yuan, 2021. "A cost-benefit analysis of R&D and patents: Firm-level evidence from China," European Economic Review, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:eecrev:v:133:y:2021:i:c:s0014292120302634
    DOI: 10.1016/j.euroecorev.2020.103633
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    References listed on IDEAS

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    4. Hu, Yi & Jin, Shuchang & Ni, Juan & Peng, Kai & Zhang, Lei, 2023. "Strategic or substantive green innovation: How do non-green firms respond to green credit policy?," Economic Modelling, Elsevier, vol. 126(C).
    5. Fang, Hongsheng & Wu, Xiao & Shen, Jim Huangnan & Zhao, Lexin, 2022. "The impact of technology identification policy on firm innovation: Evidence from China," China Economic Review, Elsevier, vol. 76(C).
    6. Liu, Mengxiao & Wang, Luhang & Yi, Yimin, 2022. "Quality Innovation, Cost Innovation, Export, and Firm Productivity Evolution: Evidence from the Chinese Electronics Industry," MPRA Paper 113270, University Library of Munich, Germany.

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