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The Span of the Effect of R&D in the Firm and Industry

  • James D Adams
  • Adam B Jaffe

Previous studies have found that the firm's own research and spillovers of research by related firms increase firm productivity. In contrast, in this paper we explore the impact of firm R&D on the productivity of its individual plants. We carry out this investigation of within firm R&D effects using a unique set of Census data. The data, which are from the chemicals industry, are a match of plant level productivity and other characteristics with firm level data on R&D of the parent company, cross-classified by location and applied product field. We explore three aspects of the span of effect of the firm's R&D: (i), the degree to which its R&D is "public" across plants; (ii), the extent of its localization in geographic space, and (iii), the breadth of its relevance outside the applied product area in which it is classified. We find that (i), firm R&D acts more like a private input which is strongly amortized by the number of plants in the firm; (ii), firm R&D is geographically localized, and exerts greater influence on productivity when it is conducted nearer to the plant; and (iii), firm R&D in a given applied product area is of limited relevance to plants producing outside that product area. Moreover, we find that while geographic localization remains significant, it diminishes over time. This trend is consistent with the effect of improved telecommunications on increased information flows within organizations. Finally, we consider spillovers of R&D from the rest of industry, finding that the marginal product of industry R&D on plant productivity, though positive and significant, is far smaller than the marginal product of parent firm's R&D.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 94-7.

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Date of creation: May 1994
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Handle: RePEc:cen:wpaper:94-7
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  1. Jaffe, Adam B, 1989. "Real Effects of Academic Research," American Economic Review, American Economic Association, vol. 79(5), pages 957-70, December.
  2. McAfee, R. Preston & McMillan, John., 1990. "Organizational Diseconomies of Scale," Working Papers 728, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  4. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
  5. Dearden, J. & Ickes, B.W. & Samuelson, L., 1988. "To Innovate Or Not To Innovate: Incentives And Innovation In Hierarchies," Papers 9-88-4, Pennsylvania State - Department of Economics.
  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. Jovanovic, B., 1993. "The Diversification of Production," Working Papers 93-11, C.V. Starr Center for Applied Economics, New York University.
  8. Zvi Griliches, 1991. "The Search for R&D Spillovers," NBER Working Papers 3768, National Bureau of Economic Research, Inc.
  9. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier.
  10. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
  11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  12. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-52, October.
  13. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
  14. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  15. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
  16. Michael Keren & David Levhari, 1983. "The Internal Organization of the Firm and the Shape of Average Costs," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 474-486, Autumn.
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