The impact of R&D investments on performance of firms in different degrees of proximity to the technological frontier

Abstract

This study analyzes the impact of R&D in the performance of companies from different degrees of proximity to the technological frontier. In this way, a model of endogenous growth was built, where firms operating closer to this frontier use the research resources to move it, enjoying a higher return. To test this hypothesis, we used a sample of companies with major investments in R&D in the world, according the ‘EU Industrial R&D Investment Scoreboard'. Then, an indicator that measures the degree of proximity to the frontier for each sector was built. Through the technique of regression with panel data, it was estimated an equation where the performance metrics of the company is conditioned by investments in R&D and the investment interacted with the proximity index to the frontiers. Thus, the impact of investments in performance is represented by two important vectors of influence: (1) the average effect of investments on performance, represented as a direction of the sector in demand for investment; (2) the effectefficiency that determines the company's strategy as its position in relation to the established frontier. The results show that, as the firms get closer the technological frontier, the greater is the return of investment in R&D on performance. These results indicate that the advancement of economies towards the frontier or the best technological practices depends on policies that incorporate the influence of the 'development stage' in the outcome of this policy.