Scandinavian Working Papers in Economics
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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 11:
Sources of Finance, R&D Investment and Productivity: Correlation or Causality?

Hans Lf () and Almas Heshmati ()

Abstract: In general there is agreement about the positive impacts of R&D on performance of firms measured as productivity, profitability and growth. However, the opposite relationship is less obvious and very little attention has been paid on examining the feedback from performance on investment. This study is an attempt to contribute to the empirical analysis of the causal relationship between investment and performance. We examine the interaction between a number of financial indicators represented by investments in R&D and tangible capital and a number of performance variables including sales, value added, profit, cash flow, capital structure and employment on R&D and physical capital investments. Empirical results are based on a large panel data set of Swedish manufacturing firms over the period 1992-2000. The results show evidence of weak feedback effects from performance on investment.

Keywords: R&D Investsments; Productivity; Financial constraints; Panel Data; (follow links to similar papers)

JEL-Codes: C23; C33; G32; L19; O33; (follow links to similar papers)

25 pages, September 24, 2004

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This paper is forthcoming as:
Lf, Hans and Almas Heshmati, 'Sources of Finance, R&D Investment and Productivity: Correlation or Causality?', ICFAI Journal of Industrial Economics.

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