Are R&D firms more efficient? A two-step switching stochastic frontier approach

Chih Hai Yang, Ku Hsieh Chen, Yi Ju Huang

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1 Scopus citations

Abstract

Are R&D firms more efficient than non-R&D firms? This study employs a two-step switching stochastic frontier approach to examine the RD-efficiency nexus. Different from previous studies, this approach corrects the endogenous R&D choice effect in erecting R&D and non-R&D firms' production frontiers and then estimates their technical efficiency and determinants of inefficiency. Using a sample of 7,590 Taiwanese electronics firms, our empirical works show R&D firms, on average, have a higher technical efficiency than non-R&D firms under the conventional setting. While this result reverses as the endogenous R&D choice effect is considered, pointing out the importance of endogenous R&D choice in examining the RD-efficiency link. Moreover, R&D firms are found to have a higher technology frontier than non-R&D firms, indicating the importance of R&D in promoting technological competence. Finally, the positive contribution of R&D activity to production is mainly sourced from accumulated R&D capital rather than current R&D outlay.

Original languageEnglish
Pages (from-to)62-74
Number of pages13
JournalProblems and Perspectives in Management
Volume7
Issue number4
StatePublished - 2009

Keywords

  • Efficiency
  • R&d
  • Stochastic frontier analysis
  • Switching regression

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