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The Impact of Firm’s R&D Strategy on Profit and Productivity

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Author Info
Johansson, Börje () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
Lööf, Hans () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

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Abstract

This paper investigates how a firm’s R&D strategy influences the firm performance as measured by productivity and profitability. A formal production model is introduced to define and interpret alternative ways of measuring the impact of R&D. Studying 1,767 randomly selected firms from the Swedish manufacturing sector, the main findings are: (i) firms which apply persistent R&D perform better than firms with occasional as well as no R&D, (ii) occasional R&D is associated with lower performance than no R&D, and (iii) in quantile regressions the positive effect from R&D persistency is lacking for low productivity firms (lowest quartile) indicating a non-linear response. Moreover, the analysis recognises the different roles of ordinary and knowledge labour in production when specifying alternative performance measures and when identifying knowledge labour as a firm’s R&D capacity, which has a highly significant impact on firm performance. Introducing a formal production model in order to define and interpret alternative ways of measuring the impact of R&D, we apply simple ordinary OLS and quantile regressions on the economic model for analyzing the importance for a particular R&D strategy on firms’ productivity and profitability. To the best of our knowledge, we believe that the main findings of the analysis make contributions to the R&D literature.

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Publisher Info
Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 156.

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Length: 28 pages
Date of creation: 03 Dec 2008
Date of revision:
Handle: RePEc:hhs:cesisp:0156

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Related research
Keywords: R&D; productivity; profit; innovation; production analysis;

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Find related papers by JEL classification:
L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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References listed on IDEAS
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  1. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
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  2. Paul Geroski & Steve Machin & John Van Reenen, 1993. "The Profitability of Innovating Firms," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 198-211, Summer. [Downloadable!] (restricted)
  3. Borje Johansson & Hans Loof, 2008. "Innovation Activities Explained By Firm Attributes And Location," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 17(6), pages 533-552. [Downloadable!] (restricted)
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  4. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-43, May. [Downloadable!] (restricted)
  5. Martin Andersson & Börje Johansson, 2008. "Innovation Ideas and Regional Characteristics: Product Innovations and Export Entrepreneurship by Firms in Swedish Regions," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 39(2), pages 193-224. [Downloadable!] (restricted)
  6. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  7. Tor Jakob Klette and Frode Johansen, 1996. "Accumulation of R&D Capital and Dynamic Firm Performance: A Not-so-fixed Effect Model," Discussion Papers 184, Research Department of Statistics Norway.
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  8. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67, pages 297. [Downloadable!] (restricted)
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