Innovation and Learning: The Two Faces of R&D

In addition to generating innovations, research and development (R&D) increases a firm's capacity to utilize existing information found within its environment. Although much research focuses on new innovation R&D, little research exists regarding the role that R&D plays in a firm's learning aptitude. A theoretical model is developed to examine implications of this dual role of research for R&D investment using the basic sources of technological knowledge a firm uses: such as the firm's own R&D, knowledge originating with its competitors' R&D spillovers, and knowledge created outside the industry. The model is tested using survey data on technological opportunity and appropriability conditions from Levin, et al. (1983, 1987) and data on business unit R&D expenditures from the Federal Trade Commission's Line of Business Programme. Results demonstrate that the influence of both appropriability and technical opportunity conditions are affected by determinants of the ease of learning, particularly the targeted quality of knowledge inputs. This suggests that the characteristics of knowledge that affect the ease of firm learning may represent an important class of determinants of R&D investments. (SFL)