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Endogenizing know-how flows through the nature of R&D investments

  • Cassiman, Bruno

    ()

    (IESE Business School)

  • Pérez-Castrillo, David

    (Universitat Autònoma de Barcelona)

In this paper we carefully link knowledge flows to and from a firm's innovation process with this firm's investment decisions. Three types of investments are considered: investments in applied research, investments in basic research, and investments in intellectual property protection. Only when basic research is performed, can the firm effectively access incoming knowledge flows and these incoming spillovers serve to increase the efficiency of own applied research. The firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that firms with small budgets for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long-run, when market opportunities are low, when legal protection is not very important, or when the pool of accessible and relevant external know-how is limited. The ratio of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors. Empirical evidence from a sample of innovative manufacturing firms in Belgium confirms the economies of scale in basic research as a consequence of the firm's capacity to access external knowledge flows and to protect intellectual property, as well as the complementarity between legal and strategic investments.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/428.

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Length: 26 pages
Date of creation: 13 Nov 2000
Date of revision:
Handle: RePEc:ebg:iesewp:d-0428
Note: Author: Reinhilde Veugelers Universiteit Leuven
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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  1. Rabah Amir & John Wooders, 1998. "One-Way Spillovers, Endogenous Innovator/Imitator Roles and Research Jointventures," CIE Discussion Papers 1998-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  2. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1988. "Appropriating the Returns from Industrial R&D," Cowles Foundation Discussion Papers 862, Cowles Foundation for Research in Economics, Yale University.
  3. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  4. Rosenberg, Nathan, 1990. "Why do firms do basic research (with their own money)?," Research Policy, Elsevier, vol. 19(2), pages 165-174, April.
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  7. Hans Gersbach & Armin Schmutzler, 2003. "Endogenous Technological Spillovers: Causes and Consequences," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(2), pages 179-205, 06.
  8. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
  9. Zvi Griliches, 1998. "The Search for R&D Spillovers," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 251-268 National Bureau of Economic Research, Inc.
  10. Harabi, Najib, 1995. "Channels of R&D Spillovers: An Empirical Investigation," MPRA Paper 26270, University Library of Munich, Germany.
  11. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 783-832.
  12. De Bondt, Raymond & Veugelers, Reinhilde, 1991. "Strategic investment with spillovers," European Journal of Political Economy, Elsevier, vol. 7(3), pages 345-366, October.
  13. Bruno Cassiman & Reinhilde Veugelers, 1998. "R&D cooperation and spillovers: Some empirical evidence," Economics Working Papers 328, Department of Economics and Business, Universitat Pompeu Fabra.
  14. Rebecca Henderson & Iain Cockburn, . "Scale, Scope and Spillovers: The Determinants of Research Productivity in Drug Discovery," Working Papers ec25/94, Department of Economics, University of Lancaster.
  15. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
  16. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
  17. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
  18. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 333-57, September.
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