Effects of Buyer and Supplier Relationships and Capital Relationships on R&D Activities

In Japan small-and-medium-sized-firms invest less in R&D activities than large firms, which is contrary to the situation observed in the United States. We constructed a new dataset on buyer and supplier relationships and capital relationships including small firms whose number of employees is less than 50 and empirically tested the hypothesis that investments in R&D of buyers and suppliers or capital affiliates have substitution effects on R&D activities of small firms. We found the evidence that is consistent with our hypothesis and results indicating that on the contrary, investments in R&D of buyers, suppliers and capital affiliates complement investments in R&D of large firms.