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Division of Labor in R&D? Firm Size and Specialization in Corporate Research

Annette Becker (), Hanna Hottenrott () and Anwesha Mukherjee ()
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Annette Becker: Technical University of Munich, TUM School of Management, Dept. of Economics & Policy
Anwesha Mukherjee: Technical University of Munich, TUM School of Management, Dept. of Economics & Policy

Munich Papers in Political Economy from TUM School of Governance at the Technical University of Munich

Abstract: Corporate research and development constitutes one of the main sources of innovation. Recent research, however, discusses a decline in corporate research and its implications for technological progress. The contribution of this study is to model research & development (R&D) decisions in an R&D investment model that allows the analysis of firms’ engagement in research (R) as compared to development (D) activities. The model predicts higher investments in both activities for larger firms, but it also shows that research intensity, i.e. the R-share in R&D, declines with firm size. We test these propositions using data of R&D-active firms over the period from 2000 to 2015. Results from panel model estimations that account for unobserved heterogeneity across firms show that larger firms invest indeed more in both research and development whereas the relative focus on research decreases with firm size. In addition, the empirical results suggest that, since the returns to research decline with firm size, specialization maximizes productivity. We discuss policy implications based on these findings.

Keywords: Corporate Research; R&D; Firm Size; Comparative Advantage; Productivity; Innovation Policy (search for similar items in EconPapers)
JEL-codes: C14 C30 O31 O38 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2020-09
New Economics Papers: this item is included in nep-cse, nep-eur, nep-ino, nep-sbm and nep-tid
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