Patents and R&D: an econometric investigation using applications for German, European and US patents by German companies

Based on the data of the first wave of the Mannheim Innovation panel, this paper explores the link between R&D expenditures and patents. Our data allow a detailed analysis of the firm size distribution of R&D and patent applications at different patent offices. It is shown that the share of R&D performing firms is strictly increasing with firm size. The share of firms applying for patents shows an even steeper increase with firm size. Moreover, large firms more likely apply for patents in more than one country. The home patent office seems to be especially important for small firms. Using various count data models, the paper explores the relationship between R&D and patents at the firm level. We carefully test several distributional assumptions for count data models. A negbin hurdle model seems to be the most appropriate count data model for our data as the decision to patent inventions and the productivity of R&D are ruled by different mechanisms. Our estimates point towards significant returns to scale of R&D. Furthermore, the empirical results can be interpreted towards minor and insignificant spillover effects. Even after controlling for a variety of firm characteristics, firm size exhibits a large effect on the propensity to patent.