Three essays on firm innovation and innovation policy

Abstract

This dissertation consists of three essays on firm innovation and innovation policy. The first essay, in chapter 2, examines the effect of firms’ basic research on their R&D productivity. In particular, this essay focuses on the conditioning role of firm-level technological diversification in the effect. Using detailed data on patents, scientific publications, and financial information of Korean manufacturing firms, this essay finds that firm-level technological diversification positively conditions the relationship between basic research and R&D productivity. In particular, unrelated technological diversification, rather than related technological diversification, has a positive conditioning effect on the relationship. Moreover, the positive conditioning effect of technological diversification is more pronounced for firms operating in high-tech industries and in less competitive industries. The findings suggest that a broad technological knowledge base across unrelated technological fields is helpful or necessary for firms to better utilize basic research for enhancing their R&D productivity. The second essay, in chapter 3, examines whether there exists a quality difference between government-funded and privately-funded patents. Furthermore, to the extent that there is a quality difference, this essay investigates under what conditions such a difference is particularly more pronounced. Using detailed data on public R&D subsidies and patents of Korean manufacturing firms, this essay obtains the following three main results. First, for the pooled sample of patents, there exists a quality difference between government-funded and privately-funded patents. Overall, the quality of government-funded patents is higher than that of privately-funded ones. Second, within-firm quality differences between government-funded and privately-funded patents are evident only for large firms but not for small ones. Third, within-firm quality differences between government-funded and privately-funded patents are evident for firms with a large technological knowledge base that perform more exploratory, rather than exploitative, R&D projects with public R&D subsidies. The findings suggest empirical evidence that supports the validity of public R&D subsidies as a policy instrument to encourage firms to produce high-quality patents. Moreover, the findings also suggest that policymakers need to consider the characteristics of applicant firms’ technological knowledge base when they select recipient firms for public R&D subsidies. The third essay, in chapter 4, examines whether public R&D subsidies for firms generate positive or negative indirect effects on innovation outputs of their rival firms in the same industry. Using detailed data on public R&D subsidies of Korean manufacturing firms, this essay finds that the direction and magnitude of the indirect effects of public R&D subsidies differ substantially depending on the types of government-supported R&D projects and rival firms’ size and age. Specifically, for subsidies for research projects, the positive indirect effects on rival firms’ innovation outputs outweigh the negative indirect effects. In contrast, for subsidies for development projects, the negative indirect effects dominate the positive indirect effects. Moreover, the negative indirect effects of public R&D subsidies are more pronounced for small and medium-sized or young rival firms, while the positive indirect effects are observed for large or old rival firms. The findings suggest that in order to more accurately evaluate the effectiveness of public R&D subsidies in promoting private firms’ innovation outputs, both researchers and policymakers need to consider the indirect effects of public R&D subsidies.