Industrial Research Labs and R&D Productivity

Abstract

One explanation for declining R&D productivity is demise of industrial research labs. We test that explanation using data from U.S. industrial lab directories from 1921 to 1998. We find the number, size and prevalence of labs have all increased rather than declined. Accordingly, we consider the opposite possibility: that the rise in labs contributed to the decline in R&D productivity. There we find that labs decrease firms’ R&D productivity 5.2%, on average. Using both aggregate data and comparative case studies, we find this “lab penalty” stems from labs’ parochialism—pursuing scientific goals at the expense of commercial goals.

Keywords: research lab, R&D productivity, RQ, innovation

JEL Classification: D24, E23, O30, 047