Persistence of R&D intensities in the world's top investors in R&D

There is extensive empirical evidence of within-sector heterogeneity in terms of firms' R&D intensity (share of expenditures on sales) which, moreover, does not converge to a common level over time. In this paper, we study the anatomy of R&D intensity persistence over time by disentangling the effect of actual state dependence from that of time-constant firm-specific unobserved heterogeneity. Using a panel of the world's top R&D investors in Pharmaceuticals & Biotechnology, Software & Computer Services, Technology Hardware & Equipment, and Electronic & Electrical Equipment, we show that companies benchmark their R&D efforts to their own specific target of R&D intensity, rather than to a sectoral mean. In the most R&D-intensive sectors, stably high levels of R&D intensity are driven by younger and low-profitability companies that tend to invest, for several years, higher shares of their sales in R&D with a view to catching up with the older incumbents of the same sector.