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Behind the Scenes: Sources of Complementarity in R&D

Marco Ceccagnoli, Matthew Higgins () and Vincenzo Palermo

No 18795, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Even though management consultants increasingly recommend that in-house research be outsourced, little is known about the conditions favoring substitution or complementarity between internal R&D and external technology acquisition. In this paper, we attempt to provide a deeper understanding of the firm-level drivers of complementarity between these two types of investments through the structural estimation of a flexible innovation production function, such as the translog. Our empirical analysis is based on a unique panel dataset on the R&D and in-licensing expenditures of 94 global pharmaceutical firms active in drug development between 1997 and 2005. Our results suggest that internal R&D and in-licensing in the pharmaceutical industry were neither complements nor substitutes during the study period. However, we find that the degree of complementarity is enhanced for firms with stronger absorptive capacity, economies of scope, and past licensing experience.

JEL-codes: L24 L65 O31 O32 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-cse, nep-ino, nep-knm and nep-sbm
Note: IO PR
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Published as Marco Ceccagnoli & Matthew J. Higgins & Vincenzo Palermo, 2014. "Behind the Scenes: Sources of Complementarity in R&D," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 125-148, 03.

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