Leo A. Grünfeld

Meet me halfway but don’t rush: absorptive capacity and strategic R&D investment revisited

Abstract In this paper, we analyse how R&D investment decisions are affected by R&D spillovers between firms, taking into consideration that more R&D investment improves the ability to learn from competing firms—the so-called absorptive capacity effect of R&D. Contrary to earlier studies, we show that absorptive capacity effects of own R&D do not necessarily drive up the incentive to invest in R&D. This only happens when the market size is small or the absorptive capacity effect is weak. Otherwise, firms will actually choose to cut down on R&D. Furthermore, absorptive capacity effects also increase the critical rate of spillovers that determines whether a research joint venture generates more R&D investment than a non-cooperative setting. Finally, we show that strong learning effects of own R&D are not necessarily good for welfare. Moreover, if the market size is large, welfare will be at its highest when the learning effect is small.

The Performance Differential between Private and State Owned Enterprises: The Roles of Ownership, Management and Market Structure

This article examines differences in performance between private companies (POEs) and state owned enterprises (SOEs), with an emphasis on the effects of market structure. The study uses a comprehensive panel covering in principle all registered companies during the 1990s in Norway, a country where SOEs play an important role in regular markets. Return on assets as well as costs relative to sales revenue are used as measures of performance in markets where SOEs and POEs compete with each other. Overall, POEs perform significantly better than SOEs. The study tests the hypothesis that SOE managers may learn from POE managers in environments with stronger competition, but finds only weak empirical support for such a learning mechanism.

Multinational Production, Absorptive Capacity, and Endogenous R&D Spillovers

Do R&D spillovers have an impact on whether firms choose to go multinational or not? We present a three-stage Cournot duopoly model, which identifies under what conditions firms choose to service a foreign market through exports or localized production. The establishment of a foreign subsidiary improves the ability to learn from foreign R&D since spillovers are strongly moderated by geographical distance. We explicitly model the concept of absorptive capacity, where gains from spillovers are determined by own R&D investments. With exogenous R&D investments, the absorptive capacity effect contributes to increase the gains from going multinational when the firm is R&D-intensive. However, if R&D investments are endogenous, only medium-sized absorptive capacity effects will result in firms going multinational. Furthermore, higher spillover rates do not necessarily drive down R&D and profits for the multinational firm. This stands in contrast to models that ignore absorptive capacity effects.

Recent Leaps Towards Free Trade: The Impact on Norwegian Industry and Trade Patterns

In this study we model effects on Norwegian industry and trade patterns of the recently implemented trade reforms - the WTO-agreement, the EEA-treaty, the OECD ship building reform and the EFTA fishing agreement - through changes in tariffs, NTBs, government procurement and subsidy policy as well as shifts in foreign prices and demand. We employ a highly disaggregated CGE model to simulate the difference between an economy adapted to the mentioned reforms and an economy based on a multilateral maintenance of the pre-reform trade system. Exports and import shares are modelled differently depending on commodity characteristics. Labour supply and national wealth are exogenously determined in order to focus on the gains from reallocations of given resources. The results indicate strong effects on the patterns of industry and trade. Specifically, we observe an increase in the production of services and highly processed goods, and a decrease in the production of raw materials and less processed commodities.

Growth and Innovation Policy in a Small, Open Economy: Should You Stimulate Domestic R&D or Exports?

Abstract In small and open economies, absorption of foreign knowledge through international trade often plays a more important role for domestic innovation and growth than investment in domestic R&D. This suggests that trade policies can increase knowledge spillovers from abroad. Public support to R&D can be motivated both by positive internal knowledge externalities and by its ability to expand absorptive capacity. This dynamic, empirical, general equilibrium analysis models these interplays between R&D, trade and productivity. It compares public R&D support and export promotion of R&D based products with respect to long term growth and welfare impacts. We find that export promotion is inferior to R&D support in spurring R&D. However, it is not outperformed in terms of welfare generation. The reason is that existing and politically persistent policy interventions create inefficiencies that can be counteracted by R&D-based export promotion as a second-best policy.In small and open economies, absorption of foreign knowledge through international trade often plays a more important role for domestic innovation and growth than investment in domestic R&D. This suggests that trade policies can increase knowledge spillovers from abroad. Public support to R&D can be motivated both by positive internal knowledge externalities and by its ability to expand absorptive capacity. This dynamic, empirical, general equilibrium analysis models these interplays between R&D, trade and productivity. It compares public R&D support and export promotion of R&D based products with respect to long term growth and welfare impacts. We find that export promotion is inferior to R&D support in spurring R&D. However, it is not outperformed in terms of welfare generation. The reason is that existing and politically persistent policy interventions create inefficiencies that can be counteracted by R&D-based export promotion as a second-best policy.

The Inferior Performance of State Owned Enterprises: Is it due to Ownership or Market Structure?

We analyze differences in performance between private companies (PCs) and state owned enterprises (SOEs), with an emphasis on the effects of market structure. We use a comprehensive panel covering all registered companies during the 1990s in Norway, a country where SOEs play an important role in regular markets. Return on assets as well as costs relative to sales revenue are used as measures of performance in models that investigate markets where SOEs and PCs actually compete with each other. After controlling for other factors that may affect performance, we find that SOE-performance is markedly lower than that of PCs. We also find that performance is positively related to the market share of companies and market concentration rates.