Outsourced R&D and declining R&D productivity
Outsourced R&D has zero output elasticity for the funder, so the 65% fall in R&D productivity reflects reallocation to outsourcing, not weaker capability.
Summary
Analyzing a six-fold rise in the share of R&D firms outsource, Knott finds outsourced R&D has zero output elasticity for the funding firm: the knowledge it generates accumulates at the performing organization, not the funder. Internal and outsourced R&D productivity each stayed stable over time, so the resulting 65% drop in aggregate R&D productivity reflects reallocation toward outsourcing, not weaker innovation capability -- a reversible strategic choice, not a capability deficit.
Editor's opinion
A sharp reframe of the outsourcing-innovation tradeoff: firms buying R&D may be quietly forfeiting the very knowledge they're paying for, and can recover simply by bringing more of it back in-house.
Key concepts
outsourced R&D · R&D productivity · reallocation · innovation