R&D and Innovation: Evidence from Patent Data

We investigate innovation dynamics in Japanese listed firms by calculating an indicator for the accumulation of innovation based on patent citations, the “citation stock.” The calculated citation stock has decreased since the mid-2000s, which implies that the pace of innovation accumulation at Japanese listed firms has slowed. Using the citation stock, we show that an increase in a firm’s citation stock contributes to its productivity growth and that the citation stock provides information on whether research and development (R&D) leads to innovation that cannot be captured by focusing on the amount of R&D investment alone. In addition, we find that while higher R&D investment is associated with new innovation, the efficiency of R&D investment in Japan has decreased in recent years. Such a decrease in the efficiency of R&D investment has been reported not only for Japanese firms but also for a wide range of fields around the world, so that firms and research institutions are attempting to maintain the pace of innovation by increasing the number of researchers and research spending. For Japan, where it is difficult to increase the number of researchers due to the declining population, it is important to improve the quality of research through various efforts such as increasing the diversity of researchers.