Types of R&D investment and firm productivity: UK evidence on heterogeneity and complementarity in rates of return

Edna M. Solomon

No 30341, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: Existing evidence on the impact of R&D on productivity is heterogenous and does not address the question of whether different types of R&D are complements or substitutes. The aim of this research is to open the R&D black box by providing fresh insights about how different R&D types affect productivity in different industrial and technological contexts in the UK. The model adopted allows for non-linearities between R&D and productivity and interactions between R&D types. The analysis makes use of micro data from the Office of National Statistics, comprising 8,284 firms from 1998 to 2012. The results show evidence of diminishing marginal returns to total R&D. This concave relationship also holds for intramural R&D, applied/experimental R&D and private R&D. These findings suggest that studies which do not allow for non-linear relationships between R&D and productivity could suffer from specification bias. The results also indicate complementarity between intramural and extramural R&D and between basic and applied/experimental research. Returns to publicly funded R&D are insignificant and there is neither complementarity nor substitution between publicly and privately funded R&D. The findings strengthen the case for modelling the sources of heterogeneity explicitly by taking account of non-linearities in and interactions between the productivity effects of different R&D types.

Keywords: firm productivity; R&D; Pavitt class; basic research; applied research; experimental research; inhouse research; extramural research; privately funded R&D; publicly funded R&D (search for similar items in EconPapers)
JEL-codes: C49 C80 D24 O30 O32 (search for similar items in EconPapers)
Date: 2020-12-02
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Published in Economics of Innovation and New Technology 5.30(2020): pp. 536-563

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