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.
Keywords: R&D, Innovation, Complementarity, Panel data JEL classification: O32, O33, D24
UNU-MERIT Working Papers ISSN 1871-9872