Working Paper: NBER ID: w18795
Authors: Marco Ceccagnoli; Matthew J. Higgins; Vincenzo Palermo
Abstract: Even though management consultants increasingly recommend that in-house research be outsourced, little is known about the conditions favoring substitution or complementarity between internal R&D and external technology acquisition. In this paper, we attempt to provide a deeper understanding of the firm-level drivers of complementarity between these two types of investments through the structural estimation of a flexible innovation production function, such as the translog. Our empirical analysis is based on a unique panel dataset on the R&D and in-licensing expenditures of 94 global pharmaceutical firms active in drug development between 1997 and 2005. Our results suggest that internal R&D and in-licensing in the pharmaceutical industry were neither complements nor substitutes during the study period. However, we find that the degree of complementarity is enhanced for firms with stronger absorptive capacity, economies of scope, and past licensing experience.
Keywords: R&D; technology acquisition; complementarity; pharmaceutical industry
JEL Codes: L24; L65; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| internal R&D + in-licensing investments (O36) | innovative output (O36) |
| higher absorptive capacity (F35) | effectiveness of in-licensing (L24) |
| economies of scope (D26) | synergies that enhance innovative output (O36) |
| previous licensing experience (D45) | better integration of external technologies (O36) |
| internal R&D + in-licensing investments (O36) | effectiveness of in-licensing (L24) |