2010 Working Papers Series on Corporate R&D and Innovation 2010 Working Papers Series on Corporate R&D and Innovation

Doing R&D or not (in a crisis), that is the question...

Authors: Michele Cincera, Claudio Cozza, Alexander Tübke and Peter Voigt
No. 12/2010

This study investigates how corporate R&D evolves in the light of the contemporary economic crisis, using empirical evidence from past downturns, looking at the relevant literature and performing an empirical analysis of recent business survey data (collected during 2009).

Findings show that some companies have reduced their innovation activities significantly, while others maintained them and a third group even increased their activities to reap the benefits in the expected upswing afterwards. Overall, we observe a deceleration of R&D and innovation activities in the light of the crisis, but the trend figures remain positive. Driven by the companies that reinforce their R&D and innovation efforts to thrive through the downturn and thus seek to gather the benefits in the upswing to come, the R&D and innovation landscape is likely to look different in the aftermath of the crisis.

These changes will inevitably affect policy intervention in the field of innovation and are a unique chance for the reorientation of policy measures. More profoundly, they could be at the root of a new paradigm, departing from a transition from an industrial to a knowledge-based society.

Corporate R&D and firm efficiency: Evidence from Europe's top R&D investors

Authors: Subal C. Kumbhakar, Raquel Ortega-Argilés, Lesley Potters, Marco Vivarelli and Peter Voigt
No. 11/2010

The main objective of this study is to investigate the impact of corporate R&D activities on firm performance, measured by labour productivity. To this end, the stochastic frontier technique is used on a unique unbalanced longitudinal dataset on top European R&D investors over the period 2000–2005. The study quantifies technical inefficiency of individual firms. From a policy perspective, the results of this study suggest that – if the aim is to leverage firms' productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some ex-tent, in medium-tech sectors. On the other hand, corporate R&D in the low-tech sector is found to have a minor effect in explaining productivity. Instead, encouraging investment in fixed assets appears important for the productivity of low-tech industries. 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. However, with regard to technical efficiency, R&D intensity is found to be a pivotal factor in explaining firm efficiency. This is true for all industries.

The determinants of R&D Investment: the role of Cash flow and Capabilities

Authors: Francesco Bogliacino and Sebastian Gómez Cardona
No. 10/2010

In this paper we estimate a behavioural equation for R&D investment. We assess the impact of liquidity constraints and capabilities, measured respectively as internal cash flow and distance from the technological frontier.

We perform our estimation on an industry level panel covering fifteen European countries from 1996 to 2005 and on a sample of European R&D performers extracted from COMPUSTAT covering 2000-2008. Both at industry level and firm level we found that financing constraints exist and that distance from the frontier negatively affects the decision to engage in R&D.

The main policy implications are the following: (a) R&D is a cash constraint investment, thus the amount which is performed on the market is suboptimal and specific policies should try to overcome these financing constraints, (b) the lack of R&D is also generated by lack of capabilities, so the economy needs specific inetrventions tailored on the generation of enablers, such as human capital accumulation.

What is small? Small and medium enterprises facing patenting activities

Authors: Abraham Garcia and Dominique Foray
No. 09/2010

In this paper the effect of firm's size is analyzed in relation with the probability to apply for a patent. We work on the identification of a minimal firm's size, a threshold, needed to formally protect an innovation by a legal mean.

Below this minimal size the costs associated to the protection will be so high that firms will prefer informal protection of their innovations. This paper shows some empirical evidence that at the international level the effect of size is very different from one country to the other.

It shows that the size effect disappears and does not seem to be an issue for big firms. It points to a critical size need to become an active user of patents. This critical size varies very much from one country to the other.

Therefore not only policies should be designed with different target across countries but the EU should provide the means to make the innovation protection accessible to all firms in all the EU countries.

Innovation and Employment: A firm level analysis with European R&D Scoreboard data

Authors: Francesco Bogliacino
No. 08/2010

The article addresses the effect of R&D on employment at firm level. We derive a reduced form labour demand where R&D expenditures enter in a non linear form. We estimate it using company data from R&D Scoreboard covering 2000-2008. The use of panel data technique allows addressing the causality issue.

The main findings can be summarized as follows. Our results confirm that R&D and innovation have positive employment impact at firm level. This impact varies according to how much the firm invests and also to its size, in terms of sales. The main implication is that the positive job creation effect increases when the R&D intensity of the firm increases.

The policy implications of the results are the following ones:

a) Policy simulations should include a proper calibration of the R&D employment elasticity. Since this appears to be non constant, then taking the average value can generate non robust predictions;

b) Policy oriented towards the entrance of new R&D intensive firms are welcome for both their labour market effect and the competition effect they generate on existing big players.

Young Leading Innovators and EU's R&D intensity gap

Authors: Michele Cincera and Reinhilde Veugelers
No. 07/2010

The difference in industrial structures explains most of the EU's aggregate corporate R&D intensity gap with the US. Increasing the number of large European companies in high R&D intensity sectors would help to reach the overall EU R&D intensity targets.

Bringing the age of the Scoreboard companies as an additional variable in this comparative analysis provides additional interesting insights concerning the origin of EU's R&D intensity gap. Younger companies (i.e. those created from 1975 onwards) show higher R&D intensity than the older ones and are more numerous in the US than in the EU. Moreover, the younger companies based in the EU are less R&D intensive than their US counterparts. Altogether these factors explain to a large extent the overall lower R&D intensity of the EU companies. Additional analysis on the factors behind these differences in structure and in company dynamics between the EU and the US might help to identify targeted policy measures aimed at boosting R&D corporate investment levels in Europe.

The More You Spend, the More You Get? The Effects of R&D and Capital Expenditures on the Patenting Activities of Biotechnology Firms

Authors: Roberta Piergiovanni and Enrico Santarelli
No. 06/2010

This paper aims at investigating in a quantitative way the main factors influencing the patent output of a sample of European and non-European biotechnology firms. Statistical models for count data are used to analyze the role exerted by the input of indirect knowledge acquired from capital expenditures and direct knowledge from in-house R&D. Results demonstrate that R&D and capital expenditures are complementary forces and determinants in the overall innovation process.

Profits, R&D and Innovation: a Model and a Test

Authors: Francesco Bogliacino and Mario Pianta
No. 05/2010

This paper aims at investigating in a quantitative way the main factors explaining: (i) the decision to engage in R&D activities; (ii) the innovation performance; and (iii) the determinants of profits. We found a postive effect of past profits of R&D investment, an overall significant role of demand in economic performance and a negative effect of the distance from the technological frontier in explaining R&D investment. Moreover, we argue that innovative activity is more complex than pure research.

The job creation effect of R&D expenditures

Authors: Francesco Bogliacino and Marco Vivarelli
No. 04/2010

This paper using a unique database covering 25 manufacturing and service sectors for 15 European countries over the period 1996-2005, for a total of 2,295 observations, and apply GMM-SYS panel estimations of a demand-for-labour equation augmented with technology investigates the impact fo R&D expenditures on job-creating effects.

Financing constraints and R&D investments of large corporations in Europe and the USA

Authors: Michele Cincera and Julien Ravet
No. 03/2010

This paper explores the existence and importance of financing constraints for R&D investments in large EU and US manufacturing companies over the 2000 – 2007 period.

Drivers and policies for increasing and internationalising R&D activities of EU MNEs

Authors: Michele Cincera, Claudio Cozza and Alexander Tübke
No. 02/2010

This paper aims at investigating in a quantitative way the main factors explaining: (i) the decision of firms to increase their R&D investment effort in the near future; (ii) the main drivers explaining the favourite international location choice for R&D; and (iii) the impact of direct and indirect policies to support R&D activities in the EU.

New insights on EU-US comparison of corporate R&D

Authors: Pietro Moncada-Paternò-Castello
No. 01/2010

This paper focuses on the main differences between the EU and the US in corporate R&D performance, especially in the following three main aspects: (i) dynamics of the economic structures and the cause of the R&D intensity gap; (ii) R&D performance and company demographics and (iii) financial availability and corporate R&D investment.