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Internal and outsourced research and development: are they complements or substitutes?

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  • Jaimin Lee
  • Minjung Kim

Abstract

A theoretically ambiguous relationship exists between internal and outsourced research and development (R&D). Along these lines, previous empirical studies report mixed results regarding the nexus between these two broad forms of R&D activity. Using a firm-level unbalanced panel dataset from South Korea for the period 2006–2018, this study investigates the relationship between internal and outsourced R&D while considering the sunk cost of internal R&D activity and the technology level of firms. We find that the relationship between internal and outsourced R&D depends on the level of industry technology and the size of firms. A complementarity exists between internal and external R&D for larger firms in high-technology industries, while a substitutive relationship is discovered for small and medium-sized firms in medium- and low-technology industries. The results suggest that the complementary or substitutive nature of the relationship between internal and external R&D depends on the industry’s technology level and firm size.

Suggested Citation

  • Jaimin Lee & Minjung Kim, 2022. "Internal and outsourced research and development: are they complements or substitutes?," Applied Economics, Taylor & Francis Journals, vol. 54(56), pages 6456-6466, December.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:56:p:6456-6466
    DOI: 10.1080/00036846.2022.2066620
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