Wendy Li (U.S. Bureau of Economic Analysis) and Mariko Sakakibara* (Policy Group, UCLA Anderson School), “Assessing the Sustainability of Technological Resources”
We develop an R&D investment model and empirically examine the processes by which the R&D assets of R&D-intensive firms accumulate and depreciate. We focus on the difference between technology leaders and followers in their resource depreciation patterns. Our model incorporates many important elements which affect a firm’s investment decisions. Using firm-level data for IT hardware, semiconductors, software and pharmaceuticals between 1990 and 2008, we find that, in general, the R&D stocks of technology leaders depreciate faster than those of followers. We also find that the R&D depreciation rates of technology leaders we studied are almost always lower than 50%. This implies that technology leaders do accumulate and sustain R&D resources, and their R&D resources do not completely dissipate. Furthermore, we find that the R&D depreciation rates of firms in pharmaceuticals are overall lower than those of other industries we studied, perhaps reflecting the difference in appropriability conditions. However, technology leaders constantly invest more in R&D than their followers to sustain R&D resources, implying that technology leaders are not necessarily more productive in R&D than followers. This implication reconciles the results derived from past studies related to firm size and the productivity of innovation.