Behind the Scenes: Sources of Complementarity in R&D
Scheller College of Business, Georgia Tech
Matthew John Higgins
Georgia Institute of Technology - Scheller College of Business; National Bureau of Economic Research (NBER)
University of Toronto - Munk School of Global Affairs
January 31, 2013
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.
Number of Pages in PDF File: 41
Keywords: Licensing, R&D, Productivity, Markets for Technology, Product Innovation
JEL Classification: L24, L65, O31, 032
Date posted: August 12, 2011 ; Last revised: May 10, 2013
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