Patents and R&D at the Firm Level: A panel data analysis applied to the Dutch pharmaceutical sector

Abstract

This paper analyzes the effect of research and development (R&D) intensity and other economic determinants on the innovation output of the Dutch pharmaceutical sector. A dynamic count data model is developed and applied, in the context of panel data framework (following Wooldridge, 2005). Our model incorporates the R&D intensity and other firm characteristics as explanatory variables. Although, both patent counts and citation-weighted patents can be viewed as indicators of technological impact and information flow, the latter reflects the quality of the patents. Hence, we consider both patent counts and citation counts, also for EPO and USPTO patents individually, as the innovation output indicator. From the estimated results, it is found that the R&D efforts have a positive and significant impact on both the patent counts and citation-weighted patents. This confirms the fact that, R&D acts as a major determinant for generating new patents. Concerning the role played by firm size, there seems to be a positive and significant relation between innovation output and size of the firms. But the significance becomes less prominent when we allow for random effects. Age of firms seems to have a negative and significant relation with innovation output. This signifies the fact that young firms are more enterprising, and are more innovation prone. Our model is further extended by incorporating dynamics, whereby it is observed that Dutch Pharmaceutical firms innovate persistently over time. This phenomenon is prominent for both patent counts and citation-weighted patent counts.