Back to Basics: Why do Firms Invest in Research?

If scientific knowledge is a public good, why do firms invest in research? This paper revisits this question with new data on patent citations to corporate scientific publications. Using data on 4,736 firms for the period 1980-2006, we explore the relationship between the use of corporate research in invention and the output of corporate scientific publications. Our principal contribution is to document that corporate investment in research is closely related to its use in invention. Specifically, firms that build on their scientific publications in their inventive activity invest more in research than those that are less successful in using their research internally. Consistent with this, research that is internally used is valued more and is more productive.