IDEAS home Printed from https://ideas.repec.org/p/kof/wpskof/16-402.html
   My bibliography  Save this paper

Research and Development as an Initiator of Fixed Capital Investment

Author

Abstract

This paper investigates the causal relationship between firms' research and development expenditures (R&D) and their investments into fixed capital. The literature provides two contrasting views in this respect. The first view holds that a firm's research activity causes, via the creation of inventions, subsequent investment into fixed capital, as the firm needs additional capacities to produce the new goods or services that follow from the inventions. The second view holds that firms' fixed capital investments cause intensified research activity, as novel capital goods from external suppliers offer the firms' researchers a wide range of additional technical possibilities of how to build new prototypes. Using panel data of Swiss firms ranging from 1990 to 2014, the paper applies, contrasting the existing empirical literature only based on VARs, a 2SLS approach to uncover the direction of causality between R&D and fixed capital investment. In order to obtain exogenous instruments, the paper exploits shocks to i) technological opportunities and ii) sales from capital goods suppliers. Results show a one-way causal relationship; we find evidence for that firms' R&D expenditures cause fixed capital investments, but we do not find evidence for the reverse effect. When additionally looking at innovation performance, R&D activities turn out to be complementary to fixed capital investment, in the sense that they markedly increase the expected return on investment. Thus, increasing research activity may not just be valuable for long-run economic growth but, via investment, may also give the economy a head start in times of a prolonged economic downturn.

Suggested Citation

  • Andrin Spescha & Martin Woerter, 2016. "Research and Development as an Initiator of Fixed Capital Investment," KOF Working papers 16-402, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:16-402
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.3929/ethz-a-010592083
    Download Restriction: no

    References listed on IDEAS

    as
    1. Parry, Ian, 1997. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Discussion Papers dp-98-04, Resources For the Future.
    2. Jaffe Adam B. & Stavins Robert N., 1995. "Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 43-63, November.
    3. Giuliana Battisti & Heinz Hollenstein & Paul Stoneman & Martin Woerter, 2007. "Inter And Intra Firm Diffusion Of Ict In The United Kingdom (Uk) And Switzerland (Ch) An Internationally Comparative Study Based On Firm-Level Data," Economics of Innovation and New Technology, Taylor & Francis Journals, pages 669-687.
    4. Parry, Ian W H, 1998. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Journal of Regulatory Economics, Springer, pages 229-254.
    5. Suzi Kerr & Richard G. Newell, 2003. "Policy-Induced Technology Adoption: Evidence from the U.S. Lead Phasedown," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 317-343, September.
    6. Binswanger, Hans P, 1974. "A Microeconomic Approach to Induced Innovation," Economic Journal, Royal Economic Society, vol. 84(336), pages 940-958, December.
    7. Nick Johnstone & Ivan Haščič & Julie Poirier & Marion Hemar & Christian Michel, 2012. "Environmental policy stringency and technological innovation: evidence from survey data and patent counts," Applied Economics, Taylor & Francis Journals, vol. 44(17), pages 2157-2170, June.
    8. Hollenstein, Heinz & Woerter, Martin, 2008. "Inter- and intra-firm diffusion of technology: The example of E-commerce: An analysis based on Swiss firm-level data," Research Policy, Elsevier, pages 545-564.
    9. Battisti, Giuliana & Stoneman, Paul, 2005. "The intra-firm diffusion of new process technologies," International Journal of Industrial Organization, Elsevier, pages 1-22.
    10. Paul Lanoie & Jérémy Laurent‐Lucchetti & Nick Johnstone & Stefan Ambec, 2011. "Environmental Policy, Innovation and Performance: New Insights on the Porter Hypothesis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 803-842, September.
    11. Giuliana Battisti & Heinz Hollenstein & Paul Stoneman & Martin Woerter, 2007. "Inter And Intra Firm Diffusion Of Ict In The United Kingdom (Uk) And Switzerland (Ch) An Internationally Comparative Study Based On Firm-Level Data," Economics of Innovation and New Technology, Taylor & Francis Journals, pages 669-687.
    12. Battisti, Giuliana & Canepa, Alessandra & Stoneman, Paul, 2009. "e-Business usage across and within firms in the UK: profitability, externalities and policy," Research Policy, Elsevier, pages 133-143.
    13. B. Howarth, Richard & Haddad, Brent M. & Paton, Bruce, 2000. "The economics of energy efficiency: insights from voluntary participation programs," Energy Policy, Elsevier, vol. 28(6-7), pages 477-486, June.
    14. Amy Purvis & Outlaw Joe, 1995. "What We Know About Technological Innovation to Achieve Environmental Compliance: Policy Issues for an Industrializing Animal Agriculture Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(5), pages 1237-1243.
    15. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    16. Joshua Linn, 2008. "Energy Prices and the Adoption of Energy-Saving Technology," Economic Journal, Royal Economic Society, vol. 118(533), pages 1986-2012, November.
    17. Shama, Avraham, 1983. "Energy conservation in US buildings : Solving the high potential/low adoption paradox from a behavioural perspective," Energy Policy, Elsevier, vol. 11(2), pages 148-167, June.
    18. Veugelers, Reinhilde, 2012. "Which policy instruments to induce clean innovating?," Research Policy, Elsevier, pages 1770-1778.
    19. Popp, David, 2006. "Innovation in climate policy models: Implementing lessons from the economics of R&D," Energy Economics, Elsevier, pages 596-609.
    20. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    21. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
    22. Malueg, David A., 1989. "Emission credit trading and the incentive to adopt new pollution abatement technology," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 52-57, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Investment; Research and Development; Invention; Technological Opportunities; Complementarity;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kof:wpskof:16-402. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/koethch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.