The effect of R&D, technological spillovers and absorptive capacity on productivity and profitability of automobile and electronics firms in Japan

• Main Author: Charusilawong, Nattachai
• Other Authors: Piesse, Jenifer; Cookson, Graham
• Published: King's College London (University of London) 2014
• Subjects: 658
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.650787

It is widely accepted that R&D is a key factor explaining performance at both macro and micro-levels. At the micro level, it is thought that firm‘s R&D activities contribute to productivity and profitability by improving efficiency and delivering new products. What is unclear is the role that technology spillovers play in firm performance and the importance that absorptive capacity plays in helping firms benefit from these spillovers. This thesis fills this gap by addressing three issues: the impact of firm R&D on performance as measured by labour productivity and profitability; the impact of technological spillovers on this performance; and the formalisation of absorptive capacity in order to examine the indirect effect of the firm‘s technological effort. Of secondary importance is the bi-directional relationship between R&D and profitability. The empirical context for this study is the Japanese automotive and electronics industries. Japan is an appropriate context because both the automotive and electronics manufacturing industries are considering some of the world leading innovators. Three empirical chapters address these issues in turn. The first explores the productivity effects of internal R&D activities, intra-industry spillovers, inter-industry spillovers and absorptive capacity. It adopts production function framework, and random and fixed effects panel data estimators. The second empirical chapter considers the effect of these factors on profitability. It applies dynamic regression models and autoregressive distributed lag empirical methodologies. Results in both empirical chapters indicate that internal R&D activities undertaken by the firm directly enhance performance and indirectly foster the capability to internalise outside knowledge. The third chapter assesses the reverse impact of profitability on the firm‘s R&D investments. Little evidence of profitability effect on R&D is found in the automobile industry whereas a fall in profit motivates electronics firms to engage more innovative activities. This thesis contributes to the literature on the impact of technology on performance at the micro-level. It sheds the light on the significance of technological externalities and the importance of absorptive capacity. The empirical analysis presented in this thesis provides insights into the direct and indirect role of firm R&D on performance, which will be of interest to managers. It also raises policy implications in bolstering the private sector‘s incentive to undertake R&D in order to cultivate the pool of technological spillovers.