Is Basic Research in Firms Useful? Evidence from Panel Data for Spain

We propose a model that associates basic research with product innovation through the absorptive capacity it generates, moderated also by the level of industry appropriability. To test these relations, we used a sample of 8,861 firms taken from a panel (PITEC). Our data suggest that basic research in firms increases their knowledge stock and flows, improving their capacity to identify, assimilate and exploit external knowledge and, therefore, their innovative product performance. By using lags we were able to find that this result can last for up to three years. In addition, we see that weak appropriability regimes can have a positive effect by increasing the influence of basic research on absorptive capacity. This evidence not only questions the disdain frequently shown by managers towards basic research, but also calls for open reflection on both the net effect of appropriability on innovative performance and the advisability of allocating public resources to stages and areas of the innovation process in which there are seldom 'market failures'.