CENTER FOR RESEARCH IN ECONOMICS AND MANAGEMENT CREAM Publication No. 5- 2010 "The R&D of Norwegian Firms: an Empirical Analysis"

This thesis aims at investigating the determinants and the effects of R&D investments in a panel data of Norwegian medium and large firms from year 1995 to 2005. There is evidence of cash constraints in the R&D expenditures, but they were less strong for beginning R&D. There is an almost proportional relationship between R&D and sales, suggesting that the externality reduction and the economies of scale for big firms are likely as strong as the alleged diminishing returns to scale and the burocratic inefficiencies of large organizations. Firms of low-intensive sectors rely much more on sales and liquidity than the high-intensive sectors. Being foreign does not have a significant impact on R&D if the firm invests, but it has a negative impact on the probability of investing, suggesting the existence of sunk costs in beginning R&D. It can be shown that R&D Granger-causes physical investment, while the opposite does not hold. This confirms the story of Lach-Schankerman and Lach-Rob, who see R&D as a random innovation process that creates innovations randomly. These, in order to be profitable, must be embodied in physical capital. R&D has some effects in increasing sales volume, while it does not show significant effects on profitability. In the high-intensive sectors, anyway, these relations seem stronger