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Corporate R&D and Firm Efficiency: Evidence from Europe’s Top R&D Investors

  • Kumbhakar, Subal C.

    ()

    (Binghamton University, New York)

  • Ortega-Argilés, Raquel

    ()

    (IN+ Center for Innovation)

  • Potters, Lesley

    (Utrecht School of Economics)

  • Vivarelli, Marco

    ()

    (Università Cattolica del Sacro Cuore)

  • Voigt, Peter

    ()

    (European Commission)

The main objective of this study is to investigate the impact of corporate R&D activities on firms' performance, measured by labour productivity. To this end, the stochastic frontier technique is applied, basing the analysis on a unique unbalanced longitudinal dataset consisting of 532 top European R&D investors over the period 2000–2005. R&D stocks are considered as pivotal input in order to control for their particular contribution to firm-level efficiency. Conceptually, the study quantifies the technical inefficiency of a given company and tests empirically whether R&D activities could explain the distance from the efficient boundary of the production possibility set, i.e. the production frontier. From a policy perspective, the results of this study suggest that – if the aim is to leverage companies' productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some extent, in medium-tech sectors. By contrast, supporting corporate R&D in the low-tech sector turns out to have a minor effect. Instead, encouraging investment in fixed assets appears vital for the productivity of low-tech industries. However, with regard to firms' technical efficiency, R&D matters for all industries (unlike capital intensity). Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an 'erga omnes' approach across all sectors appears inappropriate.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4657.

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Length: 31 pages
Date of creation: Dec 2009
Date of revision:
Publication status: published in: Journal of Productivity Analysis, 2012, 37, 125-140
Handle: RePEc:iza:izadps:dp4657
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