Two different effects of R&D on innovation in South Korea: evidence from the firm level data

Abstract

Innovation can be made through two different processes or effects of R&D, which are the creative effect and the learning effect. The existing literatures have focused on foreign direct investment (FDI) as the critical method through which R&D exerts its learning effect. However, it should be noted that export activities can also offer an important source of learning – as important as FDI – and may be exceptionally meaningful for firms in countries with export-oriented economies, such as South Korea. I argue that to examine the two true different effects of R&D accurately and offer right implications for the firms, the alternative learning effect of R&D through export at firm-level should be included in a unified framework. Using longitudinal firm-level data for the period of 2000 to 2009 in South Korea, empirical tests show that the creative effect of R&D is more important than the other two learning effects in generating innovation.