The Productivity Effects of Internal and External R&D: Evidence From a Dynamic Panel Data Model

We examine the impact of internal and external R&D on labor productivity in a 6-year panel of Dutch manufacturing firms. We apply a dynamic linear panel data model that allows for decreasing or increasing returns to scale in internal and external R&D and for economies of scope. 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. These findings confirm the role of internal R&D in enhancing absorptive capacity and hence the effective utilization of external knowledge. The scope economies due the combination of internal and external R&D are accentuated by decreasing results to scale at high levels of internal and external R&D. The analysis indicates that on average productivity grows by increasing the share of external R&D in total R&D.R&D, Innovation, Complementarity, Panel Data

The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence

We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more than the average firm. We test these predictions with a Tobit model based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats perceived by the firms reduce R&D intensity for the average firm, but not for an incumbent leader. Moreover, the size of the firms and their patent stocks, proxy for the protection of IPRs, are positively related to R&D intensity. These results hold after a number of robustness tests with instrumental variables.R&D, Entry, Endogenous market structures, Leadership

Endogenous Market Structures and Innovation by Leaders: an Empirical Test

Simple models of competition for the market with endogenous entry show that, contrary to the Arrow view, an endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats as perceived by the firms reduce R&D intensity for the average firm, but they increase it for an incumbent leader. These results hold after a number of robustness tests with instrumental variable regressions.Endogenous market structures, innovation, leadership

A Political Economy Model of Infrastructure Allocation: An Empirical Assessment

This paper proposes a simultaneous-equation approach to the estimation of the contribution of transport infrastructure accumulation to regional growth. We model explicitly the political-economy process driving infrastructure investments; in doing so, we eliminate a potential source of bias in production-function estimates and generate testable hypotheses on the forces that shape infrastructure policy. Our empirical findings on a panel of France's regions over 1985-91 suggest that influence activities were, indeed, significant determinants of the cross-regional allocation of transportation infrastructure investments. Moreover, we find little evidence of concern for the maximization of economic returns to infrastructure spending, even after controlling for pork-barrel and when imposing an exogenous preference for convergence in regional productivity levels. ZUSAMMENFASSUNG - (Ein polit-ökonomisches Modell von Infrastrukturallokation: Eine empirische Einschätzung) In dieser Untersuchung wird ein simultanes Gleichungssystem zur Schätzung des Beitrags von Verkehrsinfrastrukturinvestitionen zu regionalem Wachstum verwendet. Es wird explizit der politische Prozeß modelliert, der Infrastrukturinvestitionen determiniert; dadurch wird eine mögliche Ursache einer verzerrten Parameterschätzung vermieden, die eintreten kann, wenn Produktionsfunktionen einzeln geschätzt werden. Gleichzeitig fließen in das Modell weitere empirisch überprüfbare Hypothesen über die Determinanten von Infrastrukturpolitik ein. Die empirischen Ergebnisse für einen Paneldatensatz mit 21 französischen Regionen im Zeitraum 1985-1991 zeigen, daß unterstützende Aktivitäten in der Tat einen signifikanten Einfluß auf die regionale Allokation von Verkehrsinfrastrukturinvestitionen haben. Darüber hinaus werden nur wenig empirische Hinweise dafür gefunden, daß auch erwartete Produktivitätseffekte von Infrastruktur bei der regionalen Allokation in Frankreich von Bedeutung sind. Classification_JEL:

Vertical foreclosure: a policy framework

Whenever you phone your mother, switch on the light, or buy health insurance you purchase a service or product from a chain of vertically related industries. Providers of these products or services need access to a telecommunications network, an electricity network or to health care services. In such industries, integration and exclusive contracts between vertically related firms may have important welfare enhancing effects, but can also deny or limit rivals' access to input or customers, leading to foreclosure. Foreclosure can harm welfare if it reduces competition. This document provides policymakers with a framework to assess the potential for welfare reducing foreclosure of vertical integration and vertical restraints and describes possible remedies. The framework consists of four steps. Each step requires its own detailed analysis. First, market power should exist either upstream or downstream. Second, a theory of foreclosure should be formulated that explains why foreclosure is a profitable equilibrium strategy. Third, the existence and magnitude of potential welfare enhancing effects of the vertical restrains or vertical integration should be assessed. Fourth, suitable policies to address foreclosure should be found.

Managerial incentive and the firms’ propensity to invest in product and process innovation

We study the product and process innovation choice of firms in which a managerial incentive à la Vickers (1985) is present. Taking a two-stage dynamic game approach, we show that managerial firms are led to over-invest in process innovation, as compared to standard profit-maximising firms, while they under-invest in product innovation. The reason is that process innovation allows to decrease cost, and this is consistent with a convenient increase in the production level. On the opposite, product innovation allows increasing price, which is in contrast with the taste for output expansion embodied in the objective function of firms run by managers. Preliminary empirical evidence on Italian companies suggests that in fact the managerial nature of firm associates with significantly smaller efforts in product innovation while the effect on process innovation is positive but non-significant.Process innovation; Product innovation; R&D; Managerial incentive

The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence

We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions with a Tobit model based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). We confirm the empirical validity of our predictions and perform a number of robustness test with instrumental variables. --R&D,Entry,Endogenous market structures,Leadership