Publication

This paper analyzes how research and development (R&D) investment decisions are affected by R&D spillovers between firms, taking into account the absorptive capacity effect of R&D. The paper employs a model that treats R&D spillovers as endogenous and as a function of absorptive capacity effects. The paper shows that absorptive capacity effects do not necessarily drive up the incentive to invest in R&D and that strong learning effects of own R&D are not necessarily good for welfare.