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Investment, R&D and Financial Constraints in Britain and Germany

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Author Info
Stephen Bond
Dietmar Harhoff
John Van Reenen

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Abstract

This paper analyzes di¤erences in R&D spending and in the impact of R&Don productivity between German and UK ¿rms. We con¿rm that German ¿rmsspend signi¿cantly larger amounts on R&D than their UK counterparts, even aftercontrolling for ¿rm size and industry e¤ects. Using a dynamic production functionapproach, we ¿nd that the R&D output elasticity is approximately the same inboth countries, implying a much larger rate of return on R&D in the UK than inGermany. We discuss several explanations for this result.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0595.

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Date of creation: Dec 2003
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Handle: RePEc:cep:cepdps:dp0595

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Related research
Keywords: Corporate governance; R&D; productivity; ¿nancial constraints; paneldata;

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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  1. Bond, Stephen R & Jenkinson, Tim, 1996. "The Assessment: Investment Performance and Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 1-29, Summer.
  2. Bronwyn H. Hall, Jacques Mairesse, Lee Branstetter, and Bruno Crepon., 1998. "Does Cash Flow Cause Investment and R& D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Economics Working Papers 98-260, University of California at Berkeley. [Downloadable!]
    Other versions:
  3. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  4. Bronwyn Hall, 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series 1004, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  5. Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March. [Downloadable!] (restricted)
  6. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-29, May.
  7. Lach, Saul & Schankerman, Mark, 1989. "Dynamics of R&D and Investment in the Scientific Sector," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 880-904, August. [Downloadable!] (restricted)
  8. Dietmar Harhoff, 1997. "Are There Financing Constraints for R&D and Investment in German Manufacturing Firms?," CIG Working Papers FS IV 97-45, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
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  9. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March. [Downloadable!] (restricted)
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  10. Stephen Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial Factors and Investment in Belgium, France, Germany and the UK:A Comparison Using Company Panel Data," NBER Working Papers 5900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December. [Downloadable!] (restricted)
  12. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May. [Downloadable!] (restricted)
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  13. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  14. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Andrew B. Abel & Olivier J. Blanchard, 1987. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Bond, Stephen & Meghir, Costas, 1994. "Dynamic Investment Models and the Firm's Financial Policy," Review of Economic Studies, Blackwell Publishing, vol. 61(2), pages 197-222, April. [Downloadable!] (restricted)
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  17. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
  18. Van Reenen, John, 1997. "Why has Britain had slower R&D growth?," Research Policy, Elsevier, vol. 26(4-5), pages 493-507, December. [Downloadable!] (restricted)
  19. Toivanen, Otto & Stoneman, Paul, 1998. "Dynamics of R&D and investment: UK evidence," Economics Letters, Elsevier, vol. 58(1), pages 119-126, January. [Downloadable!] (restricted)
  20. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
  21. Janice C. Eberly & Andrew B. Abel, 2004. "Q Theory Without Adjustment Costs & Cash Flow Effects Without Financing Constraints," 2004 Meeting Papers 205, Society for Economic Dynamics. [Downloadable!]
  22. Griliches, Zvi & Mairesse, Jacques, 1983. "Comparing productivity growth: An exploration of french and U.S. industrial and firm data," European Economic Review, Elsevier, vol. 21(1-2), pages 89-119. [Downloadable!] (restricted)
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  23. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February. [Downloadable!] (restricted)
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  24. Michael Devereux & Fabio Schiantarelli, 1990. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306 National Bureau of Economic Research, Inc. [Downloadable!]
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  25. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-2), pages 1-54. [Downloadable!]
  26. Stephen Nickell & D Nicolitsas, 1996. "Does Innovation Encourage Investment in Fixed Capital?," CEP Discussion Papers dp0309, Centre for Economic Performance, LSE.
  27. Steve Bond & Jason Cummins, 2001. "Noisy share prices and the Q model of investment," IFS Working Papers W01/22, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
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