R&D Spillovers with Endogenous Absorptive Capacity: Lessons for Developing Countries

Chankwon Bae ()
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Chankwon Bae: Korea Institute for International Economic Policy

East Asian Economic Review, 2016, vol. 20, issue 2, 191-228

Abstract: This paper analyzes the role of absorptive capacity in R&D spillovers through strategic R&D investments in a game-theoretic framework. In the model, a firm's effective R&D is composed of idiosyncratic R&D, which produces its own innovations, and identical R&D, which improves absorptive capacity. The model shows that in the presence of absorptive capacity firms have a tendency to underinvest (overinvest) in idiosyncratic (identical) R&D relative to the social optimum. As the spillover becomes larger, firms decrease their own R&D while they become more inclined towards strategic exploitation of rivals' efforts. Since the former effect overpowers the latter, the total amount of R&D decreases as the spillover increases. This is socially undesirable, providing a potential justification for a governmental subsidy for idiosyncratic R&D and a tax on identical R&D. The findings may have important implications for newly industrialized or emerging countries that consider a redirection of national R&D policy and intellectual property rights (IPR) regime.

Keywords: Absorptive Capacity; R&D; Spillovers (search for similar items in EconPapers)
JEL-codes: L13 O31 O32 O38 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0013

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