Absorptive Capacity: A New Perspective on Learning and Innovation
Discusses the notion that the ability to exploit external knowledge is crucial to a firm's innovative capabilities. In addition, it is argued that the ability to evaluate and use outside knowledge is largely a function of the level of prior related knowledge--i.e., absorptive capacity. Prior research has shown that firms that conduct their own research and development (R&D) are better able to use information from external sources. Therefore, it is possible that the absorptive capacity of a firm is created as a byproduct of the firm's R&D investment. A simple model of firm R&D intensity is constructed in a broader context of what applied economists call the three classes of industry-level determinants of R&D intensity: demand, appropriability, and technological opportunity conditions. Several predictions are made, including the notions that absorptive capacity does have a direct effect on R&D spending and spillovers will provide a positive incentive to conduct R&D.
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