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Endogeneizing know-how flows through the nature of R&D investments

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  • David Pérez-Castrillo

    ()

  • Bruno Cassiman
  • Reinhilde Veugelers

Abstract

In this paper we carefully link knowledge flows to and from a firms innovation process with this firms investment decisions. Three types of investments are considered: investments in applied research, investments in basic research, and investments in intellectual property protection. Only when basic research is performed, can the firm effectively access incoming knowledge flows and these incoming spillovers serve to increase the efficiency of own applied research.. The firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that firms with small budgets for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long-run, when market opportunities are low, when legal protection is not very important, or, when the pool of accessible and relevant external know-how is limited. The ratio! of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and, the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors. Empirical evidence from a sample of innovative manufacturing firms in Belgium confirms the economies of scale in basic research as a consequence of the firms capacity to access external knowledge flows and to protect intellectual property, as well as the complementarity between legal and strategic investments.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 464.00.

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Length: 33
Date of creation: 10 Nov 2000
Date of revision:
Handle: RePEc:aub:autbar:464.00

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Keywords: spillovers; basic R&D; intellectual property protection;

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References

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  1. Andrea Fosfuri & Massimo Motta & Thomas Ronde, 1998. "Foreign direct investments and spillovers through workers' mobility," Economics Working Papers 258, Department of Economics and Business, Universitat Pompeu Fabra.
  2. AMIR, Rabah & WOODERS, John, 1997. "One-way spillovers, endogenous innovator/imitator roles and research joint ventures," CORE Discussion Papers 1997027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, vol. 13(6), pages 343-373, December.
  4. Harabi, N., 1995. "Channels of R & D Spillovers: An Empirical Investigation," Papers 37, Universitat Zurich - Wirtschaftswissenschaftliches Institut.
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  7. Rosenberg, Nathan, 1990. "Why do firms do basic research (with their own money)?," Research Policy, Elsevier, vol. 19(2), pages 165-174, April.
  8. De Bondt, Raymond & Veugelers, Reinhilde, 1991. "Strategic investment with spillovers," European Journal of Political Economy, Elsevier, vol. 7(3), pages 345-366, October.
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  10. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 333-57, September.
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  13. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
  14. Miravete, Eugenio J. & Pernias, Jose C., 1998. "Innovation Complementarity and Scale of Production," Working Papers 98-42, C.V. Starr Center for Applied Economics, New York University.
  15. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
  16. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
  17. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
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