Purposive Diversification of R & D in Manufacturing

Abstract

The R & D diversification in manufacturing of large US firms is found to be purposive, exploiting complementarities of various research activities and forming groups of related industry categories. Purposively diversified firms are seen to behave differently than randomly diversified or undiversified firms. Further, the behavioral differences between purposively diversified firms and others result because the former allocate relatively more R & D funds to industry categories where appropriability conditions are good and relatively fewer funds to those categories where appropriation of the returns from R&D is difficult. Finally, R&D expenditure and productivity are more closely linked at the group level than at the industry-category level, suggesting knowledge spills across industry categories are important.

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