Domestic R&D spillovers and absorptive capacity: Some evidence for US, Europe and Japan

Abstract

Absorptive capacity is one of the most influential concepts in the management and innovation literature. First introduced by Cohen and Levinthal (1989), it is typically defined as a set of organizational routines and processes that allow firms to assimilate, transform and exploit external knowledge. An aspect that has been ignored by the literature on absorptive capacity is the nature of the knowledge being absorbed. This paper suggests that the learning strategies underpinning absorptive capacity adapt to the type of external knowledge they are more likely to get exposure to and as a result, not all the firms appear to benefit from the same type of external knowledge for the same level of absorptive capacity. To this purpose, we explore how firm-level absorptive capacity mediates the relationship between rent and pure R&D spillovers on the one hand and firm-level turnover on the other in three economic areas (Europe, Japan and US). The empirical analysis uses a dataset (sourced from the EU R&D investment scoreboards) made of 879 worldwide R&D-intensive manufacturing firms. Given the panel data structure of the sample, econometric techniques that deal with unobserved heterogeneity as well as weak exogeneity are employed. The empirical results suggest for the same level of absorptive capacity, firms in economic areas that are closer to the world technology frontier tend to benefit more from pure (knowledge) spillovers than from rent spillovers. Vice versa, firms located in areas that are not on the technology frontier appear to benefit mostly from rent spillovers that travel along the supply chain. These results suggest that absorptive capacity changes with the type of knowledge they may get exposed to.