Exploiting the Complementarities: the Effects of External Linkages on Group Innovation

This paper examines the effects of different types of cross border external linkages on innovation. Using Taiwan as the empirical setting, we examine how the effects of external linkages on innovation vary depending on the type of linkages (joint Venture, licensing, acquisition, etc.) as well as the type of innovation (radical versus incremental). Our result is robust to both patents and R&D based measures of innovation. Two recent econometric approaches for causal inferences are applied in order to tackle possible endogeneity between external linkages and innovation. Our evidences suggest that external linkages have positive effect on innovation. The benefit of a linkage, however, depends on a firm’s ability to utilize the linkage to exploit a particular set of complementary assets. These results are robust to a variety of statistical techniques and measures.