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R&D Spending and Investment Decision: Evidence from European Firms

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Abstract

This paper investigates the role of research activity and other micro determinants, on firms' investment behaviour. The empirical analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. Given the potential simultaneity between investment decision and R&D spending, we used an instrumental variable procedure to overcome the problem of endogeneity and an instrument was constructed to cope with this issue. We find that R&D positively affects investment decisions. The analysis highlights the importance of financial factors, particularly with respect to firms' internal resources, and also sensible cross-country effects, in determining the investment level.

Suggested Citation

  • OA Carboni & G Medda, 2015. "R&D Spending and Investment Decision: Evidence from European Firms," Working Paper CRENoS 201515, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:201515
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    More about this item

    Keywords

    r&d; IV model; investment; firm behavior;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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