How to make R&D effective? Distance-to-frontier in manufacturing and R&D returns

Abstract

This paper constructs an R&D return indicator (research quotient) and examines the impact of the distance-to-frontier in manufacturing on firms’ R&D returns. We document that reducing the distance-to-frontier enhances R&D return, exhibiting an increasing marginal effect. Structural analysis shows that both industry technological frontiers and cross-national technological frontiers improve R&D returns, with the impact of cross-national technological frontiers being more significant. Reducing the distance-to-frontier enhances firms’ R&D returns through investment-financing and supply-demand coordination mechanisms. Industry heterogeneity indicates that technology-intensive industries exhibit greater sensitivity to technological frontierization. Our paper provides new evidence on the factors trapping Chinese manufacturing firms in the “R&D return puzzle.”