External and Internal Knowledge in the Knowledge Generation Function

This paper explores the role of internal and external knowledge in the generation of new technological knowledge. It implements the notion of recombinant knowledge generation function with the appreciation of: (i) the complementary-as opposed to supplementary-role of external knowledge and (ii) the role of the size and composition of the internal stock of knowledge. The empirical section is based upon a panel of companies listed on the main European financial markets for the period 1995-2006. The econometric analysis is based on simultaneous equations. The results confirm that R&D efforts and external knowledge are indispensable inputs into the generation of new technological knowledge.