Refers to innovative activities undertaken by corporations or governments in developing new services or products, or improving existing services or products. Research and development constitutes the first stage of development of a potential new service or the production process. R&D activities differ from institution to institution, with two primary models of an R&D department either staffed by engineers and tasked with directly developing new products, or staffed with industrial scientists and tasked with applied researching scientific or technological fields, which may facilitate future product development.
R&D differs from the vast majority of corporate activities in that it is not intended to yield immediate profit, and generally carries greater risk and an uncertain return on investment However R&D is crucial for acquiring larger shares of the market through the embarkations of new products. Research and development are very difficult to manage, since the defining feature of research is that the researchers do not know in advance exactly how to accomplish the desired result. As a result, “higher R&D spending does not guarantee more creativity, higher profit or a greater market share”. In general, it has been found that there is a positive correlation between the research and development and firm productivity across all sectors, but that this positive correlation is much stronger in high-tech firms than in low-tech firms.
In research done by Francesco Crespi and Cristiano Antonelli, high-tech firms were found to have “virtuous” Matthew effects while low-tech firms experienced “vicious” Matthew effects, meaning that high-tech firms were awarded subsidies on merit while low-tech firms most often were given subsidies based on name recognition, even if not put to good use.While the strength of the correlation between R&D spending and productivity in low-tech industries is less than in high-tech industries, studies have been done showing non-trivial carryover effects to other parts of the marketplace by low-tech R&D.
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