2016 Working Papers Series on Corporate R&D and Innovation 2016 Working Papers Series on Corporate R&D and Innovation

Technological diffusion as a recombinant process

Author: Petros Gkotsis, Antonio Vezzani
No. 07/2016

In this work we analyse patterns of technological development using patent applications at the United States Patent and Trademark Office (USPTO) over the 1973-2012 period. Our study focuses on the combinations of technological fields within patent documents and their evolution in time, which can be modelled as a diffusion process. By focusing on the combinatorial dimension of the process we obtain insights that complement those from counting patents. Our results show that the density of the technological knowledge network increased and that the majority of technological fields became more interconnected over time. We find that most technologies follow a similar diffusion path that can be modelled as a Logistic or Gompertz function, which can then be used to estimate the time to maturity defined as the year at which the diffusion process for a specific technology slows down. This allows us to identify a set of promising technologies which are expected to reach maturity in the next decade. Our contribution represents a first step in assessing the importance of diffusion and cross-fertilization in the development of new technologies, which could support the design of targeted and effective Research and Innovation and Industrial policies.

Sector dynamics and demographics of top R&D firms in the global economy

Author: Pietro Moncada-Paternò-Castello
No. 06/2016

This paper investigates the sectoral dynamics of the major economies during the last decade through the lens of the top 1000 R&D investors worldwide and looks at how firms' demographics are related to sector distribution. In doing so, it contributes to the literature on the EU corporate R&D intensity gap as well as on that on industrial dynamics. Contrary to the common understanding, the results show that in the EU the distribution of R&D among sectors has changed more than in the USA, which has experienced a shift mainly towards ICT-related sectors. In both the EU and the USA the pace of R&D change is slower than in the emerging economies. Furthermore, the EU has been better able than the USA and Japan to maintain its world share of R&D investment. Even more interestingly, the results show that age is strongly related to the sector (and dominant technology) in which firms operate. This suggests that focusing on sector (technological) dynamics could be even more relevant from a policy perspective than focusing only on young leading innovators. In fact, EU firms are less able to create or enter new high-tech sectors in a timely way and fully exploit the growth opportunities offered by first mover advantages.

EU corporate R&D intensity gap: What has changed over the last decade?

Author: Pietro Moncada-Paternò-Castello
No. 05/2016

This paper contributes with new findings to the literature on corporate research and development (R&D) intensity decomposition by examining the effects of several parameters on R&D intensity and investigating its comparative distribution among top R&D firms, sectors and world regions/countries. It draws on a longitudinal company-level micro-dataset from 2005 to 2013, and uses both descriptive statistics and decomposition computation methods. The results confirm the structural nature of the EU R&D intensity gap. In the last decade the gap between the EU and the US has widened, whereas the EU gap with Japan and Switzerland has remained relatively stable. The study also uncovers differences in R&D intensity between EU and US companies operating in the sectors more responsible for the aggregate R&D intensity gap. In contrast, the BRIC (Brazil, Russia, India and China) and Asian Tiger countries (Hong Kong, Singapore, South Korea and Taiwan) R&D intensity gap compared to the EU has remained relatively stable, while companies from the rest of the world are considerably reducing such gap. Finally, the study shows a high concentration -sustained over time- of R&D investment in a few countries, sectors and firms, but in the EU there are fewer smaller top R&D firms that invest more intensively in R&D, than in the most closed competing countries.

Diversity in one dimension alongside greater similarity in others: Evidence from FP7 cooperative research teams

Authors: Alex Coad, Sara Amoroso, Nicola Grassano
No. 04/2016

Although diversity between team members may bring benefits of new perspectives, nevertheless, what holds a team together is similarity. We theorise that diversity in one dimension is traded off against diversity in another. Our analysis of collaborative research teams that received FP7 funding presents robust results that indicators of diversity in several dimensions (diversity of organizational form (universities, firms, etc.), diversity in nationality and inequality in project funding share) are negatively correlated with each other.

Who's doing who? Growth of sales, employment, assets, profits and R&D entangled in a curious five-way love triangle

Authors: Alex Coad, Nicola Grassano
No. 03/2016

Understanding causal relationships among key economic variables is crucial for policy makers, who wish to e.g. stimulate private R&D growth. To this end, we applied a technique recently imported from the Machine Learning community (Structural Vector Autoregressions (SVARs) identified using Independent Components Analysis (ICA)) to a set of the world's largest R&D investors.

Our analysis highlights the key role of sales growth, rather than profits growth, in stimulating R&D growth. R&D growth appears at the end of the causal ordering of the growth process.Our results suggest that policies to increase private R&D would do better to target sales rather than profits.

Corporate R&D intensity decomposition: Theoretical, empirical and policy issues

Author: Pietro Moncada-Paternò-Castello
No. 02/2016

Research and development (R&D) indicators are increasingly used not only to facilitate international comparisons, but also as targets for policies stimulating research. An example of such an indicator is R&D intensity. The decomposition method of R&D intensity was conceived with the aim of evaluating aggregate R&D intensity and explaining the differences in R&D intensity between countries. For policy purposes, it is particularly important to determine whether the differences are intrinsic (e.g. due to firms' underinvestment in R&D) or structural (e.g. due to differences in the sectors that make up an economy).

Despite its importance for analytical purposes, the theoretical and methodological framework enabling decomposition of corporate R&D intensity has been elaborated only recently, and it is still not commonly used in the literature. Moreover, examination of the R&D intensity of firms in different industries and at different layers of aggregation leads to mixed results, the reasons for which are not fully understood.

This paper aims to review the theoretical and methodological frameworks of corporate R&D intensity decomposition and how it is applied in the literature in order to determine the policy implications of empirical results that at first sight may seem to be contradictory. More specifically, this paper surveys the literature to determine (i) the theoretical framework of determinants of corporate R&D intensity, (ii) the methodologies that have been put in place to decompose corporate R&D intensity and the empirical results reached and (iii) the likely reasons for the contrasting results. Finally, the paper points out the possible policy implications and suggests some potential avenues for future research in this area.

Regulation, red tape and location choices of top R&D investors

Authors: Daria Ciriaci, Nicola Grassano, Antonio Vezzani
No. 01/2016

This paper investigates how product and labour market regulations and red tape affect the way in which top corporate research and development (R&D) investors worldwide organise their cross-border operations. The decision about where a company locates its international subsidiaries is modelled using location-specific framework conditions, socio-economic factors and other controls commonly used in the economic geography literature.

The location decision drivers are estimated using a multilevel mixed-effects logistic regression, controlling for both fixed and random effects. Our results confirm that both product market regulation (PMR) and employment protection legislation (EPL) significantly affect the location decisions of top R&D investors, as well as red tape and profit tax.

The marginal effect of PMR is by far the largest, followed by EPL; the cost of starting a business and profit tax show lower marginal effects. Moreover, we found that (i) PMR and EPL are complementary (i.e. reducing one would also reduce the negative impact of the other) and (ii) of the three components of the PMR indicator —barriers to trade and investment, state control and barriers to entrepreneurship—the latter is the one with the lowest marginal effect. Policy implications are drawn accordingly.