Absorptive Capacity: A New Perspective on Learning and Innovation

Posted: 17 Nov 2009

See all articles by Wesley M. Cohen

Wesley M. Cohen

Duke University - Fuqua School of Business; Duke University - Department of Economics; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Daniel Levinthal

University of Pennsylvania - Management Department

Date Written: 1990

Abstract

Discusses the notion that the ability to exploit external knowledge is crucial to a firm's innovative capabilities. In addition, it is argued that the ability to evaluate and use outside knowledge is largely a function of the level of prior related knowledge--i.e., absorptive capacity. Prior research has shown that firms that conduct their own research and development (R&D) are better able to use information from external sources. Therefore, it is possible that the absorptive capacity of a firm is created as a byproduct of the firm's R&D investment. A simple model of firm R&D intensity is constructed in a broader context of what applied economists call the three classes of industry-level determinants of R&D intensity: demand, appropriability, and technological opportunity conditions. Several predictions are made, including the notions that absorptive capacity does have a direct effect on R&D spending and spillovers will provide a positive incentive to conduct R&D. All hypotheses are tested using cross-sectional survey data on technological opportunity and appropriability conditions--collected over the period 1975 to 1977 for 1,719 business units--in the American manufacturing sector from Levin et al. (1983, 1987) and the Federal Trade Commission's Line of Business Program data on business unit sales, transfers, and R&D expenditures. Results confirm that firms are sensitive to the characteristics of the learning environment in which they operate and that absorptive capacity does appear to be a part of a firm's decisions regarding resource allocation for innovative activity. Results also suggest that, although the analysis showing a positive effect of spillovers in two industry groups do not represent a direct test of the model, positive absorption incentive associated with spillovers may be sufficiently strong in some cases to more than offset the negative appropribility incentive. (SFL)

Keywords: Absorptive capacity, Innovation process, Knowledge base, Manufacturing industries, Organizational learning, R&D expenditures, Information acquisition, Information utilization

Suggested Citation

Cohen, Wesley M. and Levinthal, Daniel A., Absorptive Capacity: A New Perspective on Learning and Innovation (1990). Administrative Science Quarterly, Vol. 35, Issue 1, p. 128-152 1990. Available at SSRN: https://ssrn.com/abstract=1504447

Wesley M. Cohen (Contact Author)

Duke University - Fuqua School of Business ( email )

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Duke University - Department of Economics

213 Social Sciences Building
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National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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Daniel A. Levinthal

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States
215-898-6826 (Phone)
215-898-0401 (Fax)

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