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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)

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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Bibliographic 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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Keywords: R&D; productivity; profit; innovation; production analysis;

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References

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  1. Tor Jakob Klette & Samuel Kortum, 2002. "Innovating Firms and Aggregate Innovation," NBER Working Papers 8819, National Bureau of Economic Research, Inc.
  2. Andersson, Martin & Johansson, Börje & Karlsson, Charlie & Lööf, Hans, 2008. "Multinationals in the Knowledge Economy - a case study of AstraZeneca in Sweden," Working Paper Series in Economics and Institutions of Innovation 154, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  3. Eklund, Johan & Wiberg, Daniel, 2007. "Persistence of profits and the systematic search for knowledge - R&D links to firm above-norm profits," Working Paper Series in Economics and Institutions of Innovation 85, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  4. Borje Johansson & Hans Loof, 2008. "Innovation Activities Explained By Firm Attributes And Location," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(6), pages 533-552.
  5. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67, pages 297.
  6. Zvi Griliches, 1979. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 92-116, Spring.
  7. Tor Jakob KLETTE & Frode JOHANSEN, 1998. "Accumulation of R&D Capital and Dynamic Firm Performance: A Not-So-Fixed Effect Model," Annales d'Economie et de Statistique, ENSAE, issue 49-50, pages 389-419.
  8. Jacques Mairesse & Pierre Mohnen, 1990. "Recherche-Développement et productivité : un survol de la littérature économétrique," Économie et Statistique, Programme National Persée, vol. 237(1), pages 99-108.
  9. Nadiri, M Ishaq & Prucha, Ingmar R, 1996. "Estimation of the Depreciation Rate of Physical and R&D Capital in the U.S. Total Manufacturing Sector," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 43-56, January.
  10. John Scott, 1984. "Firm versus Industry Variability in R&D Intensity," NBER Chapters, in: R & D, Patents, and Productivity, pages 233-248 National Bureau of Economic Research, Inc.
  11. 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.
  12. 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.
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Cited by:
  1. Bergman, Karin, 2011. "Internal and External R&D and Productivity – Evidence from Swedish Firm-Level Data," Working Papers 2011:27, Lund University, Department of Economics.

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