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Corporate R&D and Productivity in Germany and the United Kingdom

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  • Stephen Bond
  • Dietmar Harhoff
  • John Van Reenen

Abstract

This paper analyzes differences in R&D spending and in the impact of R&D on productivity between German and UK firms. We confirm that German firms spend significantly larger amounts on R&D than their UK counterparts, even after controlling for firm size and industry effects. Using a dynamic production function approach, we find that the R&D output elasticity is approximately the same in both countries, implying a much larger rate of return on R&D in the UK than in Germany. We discuss several explanations for this result.

Suggested Citation

  • Stephen Bond & Dietmar Harhoff & John Van Reenen, 2003. "Corporate R&D and Productivity in Germany and the United Kingdom," CEP Discussion Papers dp0599, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0599
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    References listed on IDEAS

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. Andreas Fier & Dietmar Harhoff, 2002. "Die Evolution der bundesdeutschen Forschungs- und Technologiepolitik: Rückblick und Bestandsaufnahme," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 3(3), pages 279-301, August.
    3. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
    4. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    5. Zvi Griliches, 1998. "Productivity, R&D, and Basic Research at the Firm Level in the 1970s," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 82-99 National Bureau of Economic Research, Inc.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Stephen Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial factors and investment in Belgium, France, German and the UK: A comparison using company panel data," IFS Working Papers W97/08, Institute for Fiscal Studies.
    8. Van Reenen, John, 1997. "Why has Britain had slower R&D growth?," Research Policy, Elsevier, vol. 26(4-5), pages 493-507, December.
    9. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    10. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
    11. Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-121, March.
    12. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2010. "Investment, R&D and Financial Constraints in Britain and Germany," NBER Chapters,in: Contributions in Memory of Zvi Griliches, pages 433-460 National Bureau of Economic Research, Inc.
    13. Philippe Cuneo & Jacques Mairesse, 1984. "Productivity and R&D at the Firm Level in French Manufacturing," NBER Chapters,in: R&D, Patents, and Productivity, pages 375-392 National Bureau of Economic Research, Inc.
    14. Goto, Akira & Suzuki, Kazuyuki, 1989. "R&D Capital, Rate of Return on R&D Investment and Spillover of R&D in Japanese Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 555-564, November.
    15. Griliches, Zvi, 1986. "Productivity, R&D, and the Basic Research at the Firm Level in the 1970's," American Economic Review, American Economic Association, vol. 76(1), pages 141-154, March.
    16. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    17. Edwards,Jeremy & Fischer,Klaus, 1996. "Banks, Finance and Investment in Germany," Cambridge Books, Cambridge University Press, number 9780521566087, March.
    18. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Ugur, Mehmet & Trushin, Eshref & Solomon, Edna & Guidi, Francesco, 2016. "R&D and productivity in OECD firms and industries: A hierarchical meta-regression analysis," Research Policy, Elsevier, vol. 45(10), pages 2069-2086.
    2. Mark Rogers, 2006. "R&D and Productivity in the UK: evidence from firm-level data in the 1990s," Economics Series Working Papers 255, University of Oxford, Department of Economics.
    3. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," Handbook of the Economics of Innovation, Elsevier.
    4. Hall, Bronwyn H. & Oriani, Raffaele, 2006. "Does the market value R&D investment by European firms? Evidence from a panel of manufacturing firms in France, Germany, and Italy," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 971-993, September.
    5. Constant Djama & Guillaume Dumas & Isabelle Martinez, 2011. "L'innovation : une incitation à la gestion des résultats ?," Post-Print hal-00650418, HAL.

    More about this item

    Keywords

    Corporate governance; R&D; productivity; financial constraints; panel data;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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