Differences in the Rates of Return to R&D for European and US Young Leading R&D Firms

Abstract

This paper examines the sources of Europe’s lagging business R&D performance relative to the US, particularly the role played by missing young leading innovators in high technology intensive sectors in Europe. It investigates through econometric analysis differences in the rates of return to R&D of European and US large R&D firms. It finds that, while in the US, young firms succeed in realizing significantly higher rates of return to R&D as compared to their older counterparts, including in high-tech sectors, European firms fail to generate significant rates of return, even if they are yollies and even if they are in high-tech sectors. These findings can at least partly explain why Europe has less R&D intensive young leading innovators in high technology intensive sectors.

Keywords: young firms, rate of return to R&D, EU-US R&D gap

JEL Classification: O33