Capabilities and Investment in R&D: An Analysis on European Data

In this paper we test the effect of technological capabilities (accumulated knowledge and organization/production routines) on the R&D intensiTY for a panel of European industries. Our proxy for capabilities is the distance from the technological frontier. Estimation is carried out with System Generalized Methods of Moments and is robust to various specifications. Our identification strategy is limited to the average (reduced form) effect.

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