Internal and External R&D: Complements or Substitutes? Evidence from a Dynamic Panel Data Model

Boris Lokshin, Rene Belderbos, Martin A. Carree
2006 Social Science Research Network  
We examine the impact of internal and external R&D on labor productivity in a 6-year panel of 304 innovating firms. We apply a dynamic linear panel data model that allows for decreasing returns to scale in internal and external R&D with a non-linear approximation of changes in the knowledge stock. We find complementarity between internal and external R&D, with a positive impact of external R&D only evident in case of sufficient internal R&D. The findings confirm the role of internal R&D in
more » ... nternal R&D in enhancing absorptive capacity and hence the effective utilization of external knowledge. These results suggest that empirical studies examining complementarities between continuously measured practices should adopt more general non-linear specifications to allow for correct inferences. Acknowledgements: The empirical part of this research uses micro-level data provided by CEREM/Statistics Netherlands, drawing on the MICRONOOM data integration project at Statistics Netherlands supervised by Bert Diederen. The views expressed in this paper are those of the author and do not necessarily reflect the policies of Statistics Netherlands. We are grateful to Pierre Mohnen and participants of the 2005 EARIE conference in Porto for comments on an earlier draft.
doi:10.2139/ssrn.944477 fatcat:ycx4nykdpndqlgc3cr6537oz6e