Frontier academic research, industrial R&D, and technological progress: the case of OECD countries

Technological progress differs across countries mainly due to cumulative research and development (R&D) experience. Whilst the role of academic research, created by universities, in technological development is to increase scientific knowledge, the focus of industrial R&D is to apply knowledge that will enhance production efficiency or create new products, processes and/or services. 

The effectiveness of industrial R&D in technological progress is well-known, however the role of academic research in promoting technological development is often less recognised. In fact, universities have been the incubator of many significant innovations. Although there exists empirical evidence on university research seeding new generations of inventions and innovations by private firms, the benefit of academic research to industrial R&D is still debatable.  

Also, there is a belief that the primary objective of academic research is to achieve recognition and promotion in academia rather than create commercial values. The competition for publications might involve certain tactical activities, such as squeezing ideas into publications of negligible contributions to the advancement of science or having an extremely large co-authorship. The quest for ‘academic fame’ can redirect talented researchers from doing research that is meant to make real economic contributions to the one that is simply for the sake of publications. So, is academic research only for fame, or can it make a real technological claim?  

My co-authors (Dr Thanh Le, Associate Professor in Economics at University  of Wollongong in Australia; Mr Sau Mai, Lecturer at Academy of Policy and Development in Vietnam; and Ngoc Vu, Lecturer at Ho Chi Minh City Open University in Vietnam) and I provide a clear answer with robust empirical evidence to this question in our recent research article published in Technovation. 

We used data from 18 OECD countries during 2003-2017 for our empirical analysis. We employed the new growth theory to identify two main economic mechanisms through which frontier academic knowledge induces technological changes. First, through publications in scientific journals, the practical discoveries by frontier academic research can help improve large-scaled production processes and management methods. (Although industrial firms may not read academic journals directly, they often do read op-ed or column pieces in science and trade magazines, where new academic research is featured.) 

Second, the indirect effect of frontier academic research on technological progress is mediated by industrial R&D that occurs in the form of knowledge transfer from universities to firms. Specifically, the knowledge contained in academic publications can be transferred from academic researchers to their industrial counterparts through a university-industry partnership; or to their university students who, upon graduation, become entrepreneurs or industrial researchers. These people will help transform knowledge codified in academic publications into commercial innovation.  

Our results indicate that both frontier academic research and industrial R&D are beneficial to a country's technological progress, but a large proportion of the effect of frontier academic research on a country's technological development is transferred through industrial R&D.  

In countries with relatively abundant industrial R&D, frontier academic knowledge becomes relatively less attractive in production. This may be because the relative abundance of industrial R&D provides some cost-effective advantage in inducing Total Factor Productivity (TFP), compared to its frontier academic research counterpart.  

The results convey important implications for policymakers in designing national strategies towards promoting a nation's long-term technological development. Governments should fund scientific research to achieve sustainable growth. In creating their funding strategies, they should balance between funding to stimulate innovations in the higher education sector and that in industry. There should also be funding schemes that closely link frontier academic research with the demand to solve emerging issues of industry and society.  

Read the journal article: Le, T., Pham, H., Mai, S. and Vu, N. (2021). Frontier academic research, industrial R&D and technological progress: The case of OECD countries. Technovation. https://doi.org/10.1016/j.technovation.2021.102436.