Is R&D Enough to Improve Firm Productivity?

Research and development (R&D) is critical to innovation that enhances productivity. Going beyond a simple relationship between R&D and firm productivity performance, this article investigates what co-investments and other business operating conditions facilitate R&D in improving productivity. Using a rich micro database for Canada, we show that the actual effect of R&D on productivity depends on a number of factors that play important roles in determining R&D efficiency in improving productivity. These factors include adopting certain management practices, making investments in ICT, and maintaining a skilled workforce. In addition, the article shows that firm size, foreign ownership and market power are important positive forces in improving R&D efficiency. The findings highlight the complexity of R&D in improving productivity.