Endogeneizing know-how flows through the nature of R&D investments

In this paper we carefully link knowledge flows to and from a firms innovation process with this firms investment decisions. Three types of investments are considered: investments in applied research, investments in basic research, and investments in intellectual property protection. Only when basic research is performed, can the firm effectively access incoming knowledge flows and these incoming spillovers serve to increase the efficiency of own applied research.. The firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that firms with small budgets for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long-run, when market opportunities are low, when legal protection is not very important, or, when the pool of accessible and relevant external know-how is limited. The ratio! of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and, the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors. Empirical evidence from a sample of innovative manufacturing firms in Belgium confirms the economies of scale in basic research as a consequence of the firms capacity to access external knowledge flows and to protect intellectual property, as well as the complementarity between legal and strategic investments.

Tax incentives and direct support for R&D: What do firms use and why?

This paper studies whether firms' use of R&D subsidies and R&D tax incentives is correlated to two sources of underinvestment in R&D, financing constraints and appropriability. We find that financially constrained SMEs are less likely to use R&D tax credits and more likely to obtain subsidies. SMEs using legal methods to protect their intellectual property are more likely to use tax incentives. Results are ambiguous for large firms. For both having previous experience in R&D increases the likelihood of using tax incentives, while it reduces the likelihood of using exclusively subsidies, suggesting that the latter induce entry into R&D. Results imply that direct funding and tax credits do not have the same ability to address each source of R&D underinvestment, and that on average subsidies may be better suited than tax credits at least for SMEs. From a policy perspective these tools may be complements rather than substitutes.

Endogeneizing know-how flows through the nature of R&D investments

In this paper we carefully link knowledge flows to and from a firm s innovation process with this firm s investment decisions. Three types of investments are considered: investments in applied research, investments in basic research, and investments in intellectual property protection. Only when basic research is performed, can the firm effectively access incoming knowledge flows and these incoming spillovers serve to increase the efficiency of own applied research. The firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that firms with small budgets for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long-run, when market opportunities are low, when legal protection is not very important, or, when the pool of accessible and relevant external know-how is limited. The ratio of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and, the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors. Empirical evidence from a sample of innovative manufacturing firms in Belgium confirms the economies of scale in basic research as a consequence of the firm s capacity to access external knowledge flows and to protectintellectual property, as well as the complementarity between legal and strategic investments.

Complementarity between technology make and buy in innovation strategies: Evidence from Belgiam manufacturing firms

This paper characterizes the innovation strategy of manufacturing firms andexamines the relation between the innovation strategy and importantindustry-, firm- and innovation-specific characteristics using Belgiandata from the Eurostat Community Innovation Survey. In addition to importantsize effects explaining innovation, we find that high perceived risks andcosts and low appropriability of innovations do not discourage innovation,but rather determine how the innovation sourcing strategy is chosen. Withrespect to the determinants of the decision of the innovative firm toproduce technology itself (Make) or to source technology externally (Buy),we find that small firms are more likely restrict their innovation strategyto an exclusive make or buy strategy, while large firms are more likely tocombine both internal and external knowledge acquisition in their innovationstrategy. An interesting result that highlights the complementary nature ofthe Make and Buy decisions, is that, controlled for firm size, companies forwhich internal information is an important source for innovation are morelikely to combine internal and external sources of technology. We find thisto be evidence of the fact that in-house R&D generates the necessaryabsorptive capacity to profit from external knowledge acquisition. Also theeffectiveness of different mechanisms to appropriate the benefits ofinnovations and the internal organizational resistance against change areimportant determinants of the firm's technology sourcing strategy.

External technology sources: Embodied or disembodied technology acquisition

This paper analyzes the choice between different innovationactivities of a firm. In particular, we study the technologyacquisition decision of the firm, i.e. its technology BUYdecision as part of the firm's innovation strategy. We take a closer look at the different types of external technologyacquisition where we distinguish two broad types of technologybuy decisions. On the one hand, the firm can acquire new technology which is embodied in an asset that is acquired suchas new personnel or (parts of) other firms or equipment. On the other hand, the firm can obtain new technology disembodiedthrough a licensing agreement or by outsourcing the technologydevelopment from an R&D contractor or consulting agency. Through a series of Probit regressions, we discuss variables that might affect external technology acquisition choices of the firm andpay special attention to the firm's abilities to scan the market for technology and to absorb the technology acquired. Furthermore, we analyze the effect of different appropriationregimes on the decision of the firm to source technology.