Factors Determining R&D and Innovation Expenditure in German Manufacturing Industries

In the mid-1980s, Kamien and Schwarz (1985) concluded in their famous survey on innovation and market structure that the bulk of the empirical literature exhibits a U-shaped relationship between innovation activity on one side and market structure as well as firm size on the other. Later Cohen, Levin and Mowery (1987) argued that these correlations vanish if one controls for inter-industry differences in technological opportunity and appropriability. As it is obvious from the papers by Acs and Audretsch (1987) and Pavitt, Robson and Townsend (1987), small firms contribute — at least in some sectors of the manufacturing sector — more than bigger firms to the commercialization of new products than is indicated by their share in national R&D expenditure records in traditional R&D statistics. Based on the Dutch innovation survey in 1984, Kleinknecht (1989) found the largest R&D intensities in small firms. Moreover, standard R&D statistics are affected by a severe undercounting of R&D in small firms (see, for example, Kleinknecht, Poot and Reijnen, 1991).