Review of Industrial Organization (2006) 29:253–278 © Springer 2006
Doing R&D and/or Importing Technologies:
The Critical Importance of Firm Size in Taiwan’s
National Chung-Hsing University, Department of Applied Economics, 250 Kuo Kuang
Road, Taichung 402, Taiwan
ereq, University of Strasbourg 1, Department of Economics & Management,
PEGE – 61 avenue de la For
et Noire, F-67085 Strasbourg Cedex, France
Abstract. We analyze the relationship between ﬁrm size and innovation inputs in Taiwan.
Two inputs are considered: R&D and technology imports. Building on an existing theoret-
ical framework, we test this relationship by estimating bivariate Tobit models in twenty
2-digit industries, using a panel of 27,754 ﬁrms observed from 1992 to 1995. We ﬁnd
that, in all industries, R&D intensity and/or technology imports intensity depend strongly
on ﬁrm size, following an “inverted-U” pattern. Moreover, we ﬁnd that most industries
are only “mildly Schumpeterian”. Finally, our results provide some empirical evidence for
complementarity between R&D and technology imports in the innovation process.
Key words: ﬁrm size, inter-industry comparisons, R&D, technology imports.
JEL Classiﬁcations: O31, O33, L25, L60.
The impact of ﬁrm size on R&D has long been a debated issue in
industrial organization research. Many researchers have tried to test the
“Schumpeterian hypothesis” according to which R&D expenditures or
intensity may grow more than proportionately with ﬁrm size. However, the
empirical literature has often concluded that the relationship between R&D
and ﬁrm size may better be described by an inverted-U curve.
The present contribution focuses on the case of Taiwan and seeks to
identify, from an empirical perspective, the impact of ﬁrm size on two inno-
vation inputs: internal R&D and imports of technology. This will allow
for a test of the Schumpeterian versus the inverted-U hypotheses on orig-
inal R&D data from a newly-industrialized country; we will moreover be
able to extend this test to another innovation input: technology imports.
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