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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 Abstract: 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 imports.