Working Paper: CEPR ID: DP16592
Authors: Ashish Arora; Sharon Belenzon; Konstantin Kosenko; Jungkyu Suh; Yishay Yafeh
Abstract: It is widely believed that university and corporate research are complementary: Companies invest in research in part to develop the capacity to absorb the knowledge emerging from universities. However, as we show in this paper, corporate research in the United States emerged when American universities were behind the world frontier in scientific research. Why, then, did for-profit businesses choose to invest in creating new knowledge, much of which could spill over to rivals, and whose conduct presented manymanagerial challenges? We argue that corporate research in America arose in the 1920s to compensatefor weak university research, not to complement it. Using newly assembled firm-level data from the1920s and 1930s, we find that companies invested in research because inventions increasingly relied on science, but American universities were unable to meet their needs. Large firms, close to the technological frontier, and operating in concentrated industries were likely to invest in research, especially in scientific disciplines where American universities lagged behind the scientific frontier. Corporate science seems to have paid off, resulting in novel patents and high market valuations for firms engaged in research.
Keywords: innovation; corporate science; institutional voids
JEL Codes: L2; N12; O3; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms close to the technological frontier (O31) | Firms invest in scientific research (O32) |
| Corporate investment in scientific research (O32) | Production of novel and valuable patents (O34) |
| Large and diversified firms in concentrated industries (L22) | Successful internalization of benefits from scientific research (O36) |