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Paying for the fruits but not for the tree?
Evidence on the declining value of scientific capabilities, 1985-2007
Sharon Belenzon, Duke University
November 2014
Firms have always relied upon external sources of knowledge to innovate and grow,
but in recent decades the R&D process appears to have increasingly fragmented,
with a new and more complex division of innovative labor emerging in many
industries. In this paper, we provide evidence on the changing structure of
corporate R&D by documenting a decline in the importance that large firms attach
to scientific capability, as measured by publications of company scientists, patent
citations to science and collaborations with universities. We find that, over time and
across a range of industries (except bio-pharma), the value of scientific capabilities
has dropped sharply, whereas the value attributable to technical knowledge (as
measured by patents) has remained substantially stable. Publication activity by
large firms as well as by target-firm scientists following acquisition has also
decreased over time. Large firms appear to value the fruits of science (as reflected in
patents) but not the tree (scientific capabilities themselves), because they are
withdrawing from investing in science internally. These effects appear to be
associated with globalization---in particular, increasing competition from Chinese