The Restructuring of Japanese Research and Development:
The increasing impact of science on Japanese R&D

Concerns about the competitiveness of Japan's high-technology industries has prompted a number of recent reforms seeking to strengthen the ability of Japanese firms to utilize scientific discoveries, often originating in universities, in their R&D activities. Using an original panel data set comprised of over 300 leading Japanese R&D-performing firms, we seek to measure changes in the connection between science and Japanese industrial technology by using data on the citations to scientific articles appearing in the U.S. patents of these firms. Econometric analysis suggests that this connection is substantial, that it has grown over time, and that it contributes significantly to the research productivity of Japanese firms. Our data suggest that scientific research originating outside Japan, particularly in the United States, generates a particularly important component of these knowledge spillovers, and that measured knowledge flows are systematically related to firms' efforts to forge research alliances with American firms and universities. We integrate our econometric findings with data on the scientific publications of Japanese firms as well as a series of semi-structured interviews with Japanese R&D managers, academic scientists, and other experts. These various sources reveal that the interaction between Japanese firms and universities, domestic and foreign, is complex and takes a number of forms, only some of which are well captured by our data. The implications of this for public policy and for future research on this topic are discussed at length.