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Behind the Scenes: Sources of Complementarity in R&D

41 Pages Posted: 12 Aug 2011 Last revised: 29 Oct 2015

Marco Ceccagnoli

Scheller College of Business at Georgia Tech

Matthew John Higgins

Georgia Institute of Technology & NBER; National Bureau of Economic Research (NBER)

Vincenzo Palermo

University of Toronto - Munk School of Global Affairs

Date Written: January 31, 2013

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.

Keywords: Licensing, R&D, Productivity, Markets for Technology, Product Innovation

JEL Classification: L24, L65, O31, 032

Suggested Citation

Ceccagnoli, Marco and Higgins, Matthew John and Palermo, Vincenzo, Behind the Scenes: Sources of Complementarity in R&D (January 31, 2013). Available at SSRN: https://ssrn.com/abstract=1908940 or http://dx.doi.org/10.2139/ssrn.1908940

Marco Ceccagnoli

Scheller College of Business at Georgia Tech ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Matthew John Higgins

Georgia Institute of Technology & NBER ( email )

800 West Peachtree Street
Atlanta, GA 30308
United States
404-894-4368 (Phone)
404-894-6030 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vincenzo Palermo (Contact Author)

University of Toronto - Munk School of Global Affairs ( email )

Toronto, Ontario
Canada

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