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Endogenizing Know-How Flows Through the Nature of R&D Investments

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Author Info
Cassiman, Bruno
Pérez-Castrillo, J David
Veugelers, Reinhilde

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Abstract

In this Paper we carefully link knowledge flows to and from a firm’s innovation process with this firm’s investment decisions. Three types of investments are considered: investments in applied research, investments in basic research, and investments in intellectual property protection. Only when basic research is performed, can the firm effectively access incoming knowledge flows and these incoming spillovers serve to increase the efficiency of own applied research. The firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that firms with small budgets for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long run, when market opportunities are low, when legal protection is not very important, or, when the pool of accessible and relevant external know-how is limited. The ratio of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and, the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors. Empirical evidence from a sample of innovative manufacturing firms in Belgium confirms the economies of scale in basic research as a consequence of the firm’s capacity to access external knowledge flows and to protect intellectual property, as well as the complementarity between legal and strategic investments.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2622.

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Date of creation: Nov 2000
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Handle: RePEc:cpr:ceprdp:2622

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Related research
Keywords: Basic R&D; Intellectual Property Protection; Spillovers;

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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
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights

References listed on IDEAS
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  1. René Belderbos & Elissavet Lykogianni & Reinhilde Veugelers, 2008. "Strategic R&D Location in European Manufacturing Industries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 183-206, July. [Downloadable!] (restricted)
  2. Leahy, Dermot & Neary, J Peter, 2004. "Absorptive Capacity, R&D Spillovers and Public Policy," CEPR Discussion Papers 4171, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Stéphane Lhuillery, 2006. "Voluntary technological disclosure as an efficient knowledge management device: An empirical study," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 15(4-5), pages 465-491, June. [Downloadable!] (restricted)
    Other versions:
  4. Lars Wiethaus, 2006. "Cooperation or competition in R&D when innovation and absorption are costly," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 15(6), pages 569-589, September. [Downloadable!] (restricted)
  5. Mohnen, Pierre & Rose, Antoine & Rosa, Julio, 2006. "Buying and Selling Research and Development Services, 1997 to 2002," UNU-MERIT Working Paper Series 018, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
  6. Spyros Arvanitis & Thomas Bolli, 2009. "A Comparison of Firm-level Innovation Cooperation in Five European Countries," Working papers 09-232, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  7. Carine Peeters & Bruno Pottelsberghe de la Potterie, 2006. "Innovation strategy and the patenting behavior of firms," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 109-135, April. [Downloadable!] (restricted)
  8. Arbussà, Anna & Coenders, Germà, 2005. "Innovation strategies in the presence of technology markets: evidence from Spanish innovative firms," Working Papers of the Department of Economics, University of Girona 15, Department of Economics, University of Girona. [Downloadable!]
  9. Maria Fuensanta Morales, 2001. "Research Policy and Endogenous Growth," UFAE and IAE Working Papers 488.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  10. Cassiman, Bruno & Veugelers, Reinhilde, 2003. "R&D Cooperation Between Firms and Universities: Some Empirical Evidence from Belgian Manufacturing," CEPR Discussion Papers 3951, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Cassiman, Bruno & Veugelers, Rainhilde, 2003. "Which firms have cooperative R&D agreements with universities? Some empirical evidence from Belgian manufacturing," IESE Research Papers D/502, IESE Business School. [Downloadable!]
  12. Faria, Pedro & Sofka, Wolfgang, 2008. "Formal and Strategic Appropriability Strategies of Multinational Firms: A Cross Country Comparison," ZEW Discussion Papers 08-030, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  13. Mark Frascatore, 2006. "Absorptive Capacity in R&D Joint Ventures When Basic Research Is Costly," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 6(1), pages 1572-1572. [Downloadable!] (restricted)
  14. Stéphane Lhuillery, 2005. "Organisation and location of academic sourcing at the firm level," CEMI Working Papers cemi-report-2005-001, Ecole Polytechnique Fédérale de Lausanne, Collège du Management de la Technologie, Management of Technology and Entrepreneurship Institute, Chaire en Economie et Management de l'Innovation. [Downloadable!]
  15. Belderbos, Rene & Lykogianni, Elissavet & Veugelers, Reinhilde, 2005. "Strategic R&D Location by Multinational Firms: Spillovers, Technology Sourcing and Competition," CEPR Discussion Papers 5060, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  16. Gamal Atallah, 2004. "The Protection of Innovations," CIRANO Working Papers 2004s-02, CIRANO. [Downloadable!]
  17. Barros, Henrique M., 2008. "The interaction between patents and other appropriability mechanisms: firm-level evidence from UK manufacturing," Ibmec Working Papers wpe_103, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  18. Nola Hewitt-Dundas & Ciara Leonard, 2005. "Embracing a systems perspective of innovation – Evidence from Ireland on the use of innovation links, 1991 to 2002," ERSA conference papers ersa05p608, European Regional Science Association. [Downloadable!]
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