Are large business groups conducive to industry innovation? The moderating role of technological appropriability

This paper examines the impact of the share of business groups in an industry on the industry’s R&D intensity. First, we derive a simple theoretical model of industry R&D intensity in the presence of big business groups. Our model predicts that the effect of business-group share on industry R&D intensity differs across industries depending on the technological appropriability: A positive relationship for industries with low R&D appropriability, while a negative relationship for industries with high R&D appropriability. Based on these predictions, we develop and test our hypothesis using unique data on Korean manufacturing industries. Our results confirm the moderating role of technological appropriability, implying that the inverted-U shape between business-group share and industry R&D intensity frequently observed at the aggregate-sample level reflects the combination of those two opposite relationships.