Internal R&D effort, external imported technology and economic value added: empirical study of Taiwan's electronic industry

Abstract

Technology innovation is a significant resource in the contemporary knowledge-based economy. The main sources of technology innovation are internal R&D effort and external imported technology. Two primary traditional production factors are physical capital and labour. The theoretical basis for this study is an evolutionary Cobb–Douglas production function explaining the effects of four resources (internal R&D effort, imported technology, physical capital and labour) on a firm's sales and economic value added (EVA). Time-series cross-section panel data from 219 Taiwan electronic manufacturers between 1990 and 2003 were employed for fixed effect model. Major empirical findings were observed in this study: first, Internal R&D effort can positively affect a firm's sales and EVA. Conversely, imported technology is found to have had no significant effect on sales and EVA. Second, although both physical capital and labour affect a firm's sales more than the effects of internal R&D and external imported technology, internal R&D effort contributes to a firm's EVA beyond the effects of imported technology, physical capital and labour. Third, External imported technology has neither a complementary nor a substitutive relationship with internal R&D effort.

Acknowledgements

The author appreciates the comments concerning the earlier versions of this paper given by the participants of the conference ‘R&D management conference 2005’ in Italy, July 2005. The author also thanks Dr Yeong-Jia, James Goo and anonymous referees for their important insights into the definitions and settings of this study. Economic support from the National Science Council of the Republic of China is gratefully acknowledged.