Absorptive Capacity, R&D Spillovers, and Public Policy

Dermot Leahy () and J. Peter Neary ()

No 200418, Working Papers from School Of Economics, University College Dublin

Abstract: Empirical evidence strongly suggests that R&D increases a firm’s "absorptive capacity" (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity process and show that costly absorption both raises the effectiveness of own R&D and lowers the effective spillover coefficient. This weakens the case for encouraging research joint ventures, even if there is complete information sharing between its members. It also implies an additional strategic pay-off to policies that raise the level of extra-industry knowledge.

Keywords: Absorptive capacity of R&D; competition policy; industrial policy; R&D spillovers; research joint ventures (search for similar items in EconPapers)
JEL-codes: O31 L13 (search for similar items in EconPapers)
Date: 2004-05-29
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http://www.ucd.ie/economics/research/papers/2004/WP04.18.pdf First version, 2004 (application/pdf)

Related works:
Working Paper: Absorptive Capacity, R&D Spillovers and Public Policy (2004)
Journal Article: Absorptive capacity, R&D spillovers, and public policy (2007)
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