The impact of the Internet on R&D efficiency: theory and evidence

Particularly for the manufacturing sector, the efficiency of the R&D-process defines to a great extent a firm's competitiveness. Although there are many studies which present practical examples of how firms utilize the Internet to support their everyday research activities, there is not much theory to explain how and why the Internet improves R&D efficiency. This paper attempts to fill this void by exploring the association between the Internet and R&D efficiency. Initially, in order to provide a better unit of analysis, it adopts a feature-based approach to the Internet. Then it offers a conceptual framework which by using theoretical explanations, past empirical research and examples from practice explains how and why two features of the Internet ('search' and 'communication') improve three critical dimensions of R&D efficiency (cost, time and quality) and a firm's absorptive capacity. Finally, by using the Cobb-Douglas framework, it provides econometric evidence which indicates that the Internet does improve R&D efficiency. Besides the contribution to scholarly knowledge, there are important implications in practice, since the findings of this paper inform decision and policy makers that the Internet has a significant impact on firms' innovative capacity. (c) 2005 Elsevier Ltd. All rights reserved.