Can You Know Too Much to Learn: The Relationship Between Internal Research Capabilities and External Knowledge for Innovation

The positive role of external knowledge sources for firms’ innovation performance is well established. However, there is reason to suspect the existence of important boundary conditions regarding this relationship, and the current understanding on such limiting conditions is still incomplete. In this paper, we separate research from development in firm-internal R&D activities and specifically analyze the role of research (?R?) for utilizing external knowledge. Although a firm’s absorptive capacity may increase as a result of investing in own research capabilities, the necessity to rely on external sources may decrease with growing internal knowledge, along with a decreasing pool of valuable external knowledge. We test our predictions using a representative Panel dataset from Spain (?PITEC?) that contains detailed information on the composition of firm internal knowledge creation activities and the use of external knowledge for the purpose to innovate. Our econometric analysis suggests that the value of external knowledge decreases in light of strong firm-internal research capabilities, particularly for knowledge held by other firms as opposed to academic institutions.