How Much Does R&D Decision Depend on Firm, Industry, Group and its Interactions?

Abstract

In the recent year, technological progress through research and development (R&D) has been widely recognized as a key factor contributing to economic growth and competitiveness of the economy. In the traditional industrial organization (IO) literature R&D activities was considered to be an important conduct variable that can affect performance of the industry. Industrial organization (IO) literature stresses that the R&D behaviour is linked to industry structure and has the ability to create barriers to entry. On the other hand subsequent studies have stressed on the strategic groups within an industry as the main driving force behind the R&D behaviour of firms. However, the resource based view stresses on the internal capability of the firm as the main driving force. They also emphasized that the behaviour of the firm is path dependent. This study is an attempt to measure the effects of industry, group, and firm on R&D behaviour of the firm and their interaction. The study uses both continuous and categorical variables in an ANCOVA setting. The sample consists of data about Indian companies across 29 industries during 1995-2003. The findings show that though the effects of the industry and the firm are important, the most significant contributor is the effect of the interaction between the groups and the industry.