Corporate R&D investment creates additional economic value in the process of product development and technology transfer to related companies. The ripple effect of corporate R&D investment has been studied in various ways. It is known that there is a positive spillover effect; although the size of R&D investment returns varies depending on the type of technology, industry across country and time.

The purpose of this study is to accurately estimate the returns of R&D investment and the magnitude of the spillover effect of Korean manufacturing companies. Specifically, this study analyzed the private and public returns to R&D and spillover effects of 6,172 firms in industries where R&D investment was more than 1% of total private R&D investment in 2016. In particular, overestimations of the spillover effect of R&D was prevented by reflecting not only the positive effect of R&D but also the negative effect caused by competitive factors among firms.

The results of the analysis on corporate financial and patent data for 2007-2016 revealed that the average for the social and private returns of domestic R&D investment was approximately 14.24% and 11.77%, respectively―making the spillover effect about 2.47%p. The industries with high R&D spillover effects are the Manufacture of pharmaceuticals, medicinal chemical and botanical products, Manufacture of medical, precision and optical instruments, watches and clocks, and Manufacture of electrical equipment. The industries with small R&D spillover effects are the Manufacture of other transport equipment, and Manufacture of fabricated metal products, except machinery and furniture. As a result of examining the differences in social return by characteristics of firms, it was found that the larger the employment size, the larger the patent registration, and the higher the R&D investment ratio to the sales, the greater the spillover effect of R&D.

Korea's private R&D support policy is characterized by policies for future growth engine industries and small and medium-sized enterprise (SME) support policy. It is highly desirable if technologies and products with high social and economic impact are selected and fostered through such policies. However, if the goals and targets of R&D support are set too broadly without considering the R&D capabilities or influence of individual firms, the effectiveness of the policy may be diminished as it would be indistinguishable from non-R&D SME support policies.

In order to enhance the effectiveness of the R&D support policy, it is necessary to return to basics and raise the amount of knowledge production which is below the social optimum level, and to concentrate resources on more rigorous industries and technologies. This should not only be based on the criteria analyzed in this study, but should also begin with a more precise understanding of the spillover effects of R&D support.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Spillover Effects of R&D and Market Failures

Chapter 3 Estimating the Returns to R&D Investment
　Section 1 Methodology
　Section 2 Data
　Section 3 Estimation Results of R&D Elasticity

Chapter 4 Spillover Effects of R&D

Chapter 5 Conclusion

References
Appendix
ABSTRACT