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Absorptive Capacity, R&D Spillovers and Public Policy

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  • Neary, Peter
  • Leahy, Dermot

Abstract

Empirical evidence strongly suggests that R&D increases a firm?s ?absorptive capacity? (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity process and show that costly absorption both raises the effectiveness of own R&D and lowers the effective spillover coefficient. This weakens the case for encouraging research joint ventures, even if there is complete information sharing between its members. It also implies an additional strategic pay-off to policies that raise the level of extra-industry knowledge.

Suggested Citation

  • Neary, Peter & Leahy, Dermot, 2004. "Absorptive Capacity, R&D Spillovers and Public Policy," CEPR Discussion Papers 4171, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4171
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    More about this item

    Keywords

    Absorptive capacity of r&d; Competition policy; Industrial policy; R&d spillovers; Research joint ventures;
    All these keywords.

    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

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