Productivity Effects of Basic Research in Low-Tech and High-Tech Industries

Research and development activities encompass a myriad of activities which are usually summarized under the terms of basic research, applied research and development. By contrast to applied research and experimental development which focus on the use of existing scientific principles and draw on existing knowledge, basic research is regarded as very early stage research that is driven by a scientist's curiosity or interest in a scientific question and barely helps practitioners with their everyday concern. Its research outputs, however, are considered as key inputs for further investments into the R&D process which eventually lead to technological innovations, i.e. new products or processes.

As basic research is less focused, more uncertain than the other components of R&D, and regarded as relatively difficult to appropriate, firms may need a substantiated knowledge base for guidance in order to make these research efforts beneficial. Especially for firms operating in high-tech industries basic research is regarded as an essential component for firm success. Furthermore, as high-tech companies are characterized by investing a larger share of their budgets into R&D activities they may be able to appropriate a larger fraction of the benefits than firms active in low-tech sectors.

Using a panel database of Flemish firms this study investigates the effect of basic research in low-tech and high-tech industries by estimating augmented Cobb-Douglas production functions. The results show a positive effect of basic research on firm success for the full sample of firms and also for the high-tech sample. Moreover, the results indicate that basic research exhibits a productivity premium when compared to applied research and development in high-tech sectors. In low-tech sectors, however, we do not find evidence for a premium of basic research.

Czarnitzki, Dirk and Susanne Thorwarth (2012), Productivity Effects of Basic Research in Low-Tech and High-Tech Industries, ZEW Discussion Paper No. 12-027, Mannheim.