British R&D: too much competition?

Private sector R&D spending in Britain has been pretty lacklustre in recent years. Why? A new Oxford University economics working paper by Mark Rogers, R&D and Productivity in the UK: evidence from firm-level data in the 1990s, provides at least a partial explanation. Its not shortahge of talent or capital, argues Rogers. But intense competition may be dragging down reurns on innovation:

The UK`s business R&D (BERD) to GDP ratio is low compared to other leading economies, and the ratio has slowly declined over the 1990s. This paper uses data on large UK firms to analyse the link between R&D and productivity over the 1989-2000 period. Using a production function approach, and a sample of up to 719 firms, various different samples and estimators are used to assess the elasticity of, and rate of return to, R&D.

The results indicate that UK returns to R&D are similar to returns in other leading economies. Furthermore, the returns to R&D have been relatively stable over the 1990s. There is no evidence to suggest that stock market listed firms, or firms with higher past profitability, have significantly different returns.

Overall, the results suggest that the low BERD to GDP ratio in the UK is unlikely to be due to direct financial or human capital constraints (as these imply finding relatively high rates of return). Instead, the low BERD to GDP ratio appears to reflect low (perceived) opportunities by firms and the inability of firms to manage R&D to generate value. The paper provides some, tentative evidence, that high rates of competition in the science-based sector are associated with low returns to R&D.

Comments

[pgl]

Comparing expected returns to costs is something I've been trying to get Michael Mandel to consider. I wonder if he reads The New Economist?

[chris]

Doesn't this corroborate Nordhaus's finding for the US, that the private returns to innovation are tiny?:
http://cowles.econ.yale.edu/P/ab/a14/a1457.htm

[Arthur Eckart]

Thomas Edison stated: "Genious is one percent inspiration and 99 percent perspiration." Drug firms spend lots on R&D and most drugs fail. However, the successful drugs (that receive FDA approval) often turn out to be blockbusters. High prices for new drugs are needed to offset costs and to continue R&D. Also, new firms in new industries typically start off as "cash hogs," and some will eventually become "cash cows."