Is there complementarity or substitutability between internal and external R&D strategies?

John Hagedoorn () and Ning Wang ()
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John Hagedoorn: UNU-MERIT, and Maastricht University
Ning Wang: Maastricht University

No 2010-005, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: The mixed picture of extant research on the relationship between internal and external R&D prompts us to ask such a question: under what conditions is there complementarity or substitutability between different R&D strategies? The goal of this paper is to contribute to the empirical literature by advancing and testing the contingency of the relationship between internal and external R&D strategies in shaping firms‘ innovative output. Using a panel sample of incumbent pharmaceutical firms covering the period 1986-2000, our empirical analysis suggests that the level of in-house R&D investments, which is characterized by decreasing marginal returns, is a contingency variable that critically influences the nature of the link between internal and external R&D strategies. In particular, internal R&D and external R&D, through either R&D alliances or R&D acquisitions, turn out to be complementary innovation activities at higher levels of in-house R&D investments, whereas at lower levels of in-house R&D efforts internal and external R&D are substitutive strategic options. These findings are robust to alternative specifications and estimation techniques, including a dynamic perspective on firm innovative performance.

Keywords: Complementarity; Substitutability; Internal R&D; External R&D; Innovative Output; Pharmaceutical Industry; Biotechnology (search for similar items in EconPapers)
JEL-codes: L24 O32 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2010005

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