"The Impact of Industrial Research Labs on Firms’ R&D Productivity"

An oft-mentioned contributor to decline in US R&D productivity is the demise of industrial research labs. We tested the extent to which that’s true. To do so, we first characterized the evolution in the lab population, we then examined their impact on firms’ R&D productivity. Using digitized data from US industrial research lab directories from 1921 to 1998, we found the population of labs increased over time both absolutely and as a share of firms. Thus, demise of labs cannot explain the decline in productivity. We then explored whether instead the rise in labs may have contributed to the productivity decline and found that the treatment effect of a lab was a 4.3% decline in firm R&D productivity. To understand the mechanisms behind such a decline, we conducted historical case studies of firm-pairs (one high-one low R&D productivity) in each of three industries. We found that each of the low RQ firms exhibited some form of lab insularity.