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

Oliviero Carboni and Giuseppe Medda ()

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

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.

Keywords: r&d; IV model; investment; firm behavior (search for similar items in EconPapers)
JEL-codes: C31 O32 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cse, nep-eur, nep-ino, nep-knm and nep-tid
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https://crenos.unica.it/crenos/node/6547
https://crenos.unica.it/crenos/sites/default/files/WP15-15_0.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:201515

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