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Decomposing the temporal variation in the business-sector private R&D intensity

Abstract:

This paper decomposes the variation in the business-sector R&D intensity, specifically the fraction financed through private resources, into changes in the firm characteristics, firm-specific R&D investment policies, external financing of R&D, and firm-specific policies related to supplementing/replacing the latter with private resources. First, we estimate the relationship between R&D intensity and external financing using micro-econometric models and controlling for selection bias (Vella, 1993). Then, we apply a ‘three-fold’ decomposition which improves the Blinder-Oaxaca procedure (Jann, 2008). We find that business-sector R&D intensity is more affected by firm-specific investment policies than by firm characteristics. Also, external financing and firm-specific policies related to supplementing/replacing external financing have major effects on R&D intensity. Although several effects are individually significant, overall (except for the period 2008–2013), the estimated value of the business-sector private R&D intensity has no significant variations since the individual effects balance each other out.