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Absorptive Capacity, R&D Spillovers, and Public Policy

Author

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  • Dermot Leahy

    (University College Dublin)

  • J Peter Neary

    (University College Dublin)

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

  • Dermot Leahy & J Peter Neary, 2004. "Absorptive Capacity, R&D Spillovers, and Public Policy," Working Papers 200418, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200418
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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:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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