Abstract
R&D activities produce knowledge, new products and processes, and augment firms’ capacities to adapt. Yet investing in R&D does not always lead to higher profits, because the value it creates is difficult to appropriate. We theorize three characteristics of industry’s tangible input factor markets raise appropriability and the returns to R&D. Using a panel dataset of 1303 business units, across 168 manufacturing industries, we find that R&D investment makes a greater contribution to profits when factor markets are diverse (provide many different, equally valued inputs), complementary (offer compositionally similar inputs), and specialized (supply inputs not used extensively in other industries).
Published Version
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