In this paper we carefully link knowledge flows to and from a firm's innovation process with this firm's 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 firm's 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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Paper provided by IESE Business School in its series IESE Research Papers with number
D/428.
Length: 26 pages Date of creation: 13 Nov 2000 Date of revision: Handle: RePEc:ebg:iesewp:d-0428
Note: Author: Reinhilde Veugelers Universiteit Leuven Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN Web page: http://www.iese.edu/ More information through EDIRC
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Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Zvi Griliches, 1998.
"The Search for R&D Spillovers,"
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in: R&D and Productivity: The Econometric Evidence, pages 251-268
National Bureau of Economic Research, Inc.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Stéphane Lhuillery, 2005.
"Organisation and location of academic sourcing at the firm level,"
CEMI Working Papers
cemi-report-2005-001, Ecole Polytechnique Fédérale de Lausanne, Collège du Management de la Technologie, Management of Technology and Entrepreneurship Institute, Chaire en Economie et Management de l'Innovation.
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