Inverted-U relationship between R&D intensity and survival: evidence on scale and complementarity effects in UK data

Existing evidence on the relationship between R&D intensity and firm survival is varied and often con-flicting. We argue that this may be due to overlooking R&D scale effects and complementarity betweenR&D intensity and market concentration. Drawing on Schumpeterian models of competition and inno-vation, we address these issues by developing a formal model of firm survival and using a panel datasetof 37,930 of R&D-active UK firms over 1998–2012. We report the following findings: (i) the relationshipbetween R&D intensity and firm survival follows an inverted-U pattern that reflects diminishing scaleeffects; (ii) R&D intensity and market concentration are complements in that R&D-active firms havelonger survival time if they are in more concentrated industries; and (iii) creative destruction as proxiedby median R&D intensity in the industry and the premium on business lending have negative effects onfirm survival. Other findings concerning age, size, productivity, relative growth, Pavitt technology classesand the macroeconomic environment are in line with the existing literature. The results are strongly ormoderately robust to different samples, stepwise estimations, and controls for frailty and left truncation.