Internal and External R&D: Complements or Substitutes? Evidence from a Dynamic Panel Data Model

KUL Working Paper No. OR 0604

21 Pages Posted: 15 Nov 2006

See all articles by Boris Lokshin

Boris Lokshin

Maastricht University, School of Business and Economics

René Belderbos

University of Leuven (KUL) - Department of Managerial Economics, Strategy and Innovation; Maastricht University - Department of Organization & Strategy

Martin A. Carree

University of Maastricht - Department of Organization & Strategy

Date Written: 2006

Abstract

We examine the impact of internal and external R&D on labor productivity in a 6-year panel of 304 innovating firms. We apply a dynamic linear panel data model that allows for decreasing returns to scale in internal and external R&D with a non-linear approximation of changes in the knowledge stock. We find complementarity between internal and external R&D, with a positive impact of external R&D only evident in case of sufficient internal R&D. The findings confirm the role of internal R&D in enhancing absorptive capacity and hence the effective utilization of external knowledge. These results suggest that empirical studies examining complementarities between continuously measured practices should adopt more general non-linear specifications to allow for correct inferences.

Keywords: R&D, Panel data, Data, Model, Impact, Productivity, Innovating firms, Firms, Approximation, Knowledge, Empirical study, Studies, Specifications

JEL Classification: O32, O33, D24

Suggested Citation

Lokshin, Boris and Belderbos, Rene and Carree, Martin A., Internal and External R&D: Complements or Substitutes? Evidence from a Dynamic Panel Data Model (2006). KUL Working Paper No. OR 0604, Available at SSRN: https://ssrn.com/abstract=944477 or http://dx.doi.org/10.2139/ssrn.944477

Boris Lokshin (Contact Author)

Maastricht University, School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3697 (Phone)
+31 43 325 4893 (Fax)

Rene Belderbos

University of Leuven (KUL) - Department of Managerial Economics, Strategy and Innovation ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16 32 6912 (Phone)
+32 16 32 6732 (Fax)

Maastricht University - Department of Organization & Strategy ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Martin A. Carree

University of Maastricht - Department of Organization & Strategy ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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