External R&D and Product Innovation: Is Over-Outsourcing an Issue?

The acquisition of external R&D positively affects the creation of innovative products; however, as external R&D intensity and complexity increase, firms may face higher costs of coordination and control. Recent literature has found evidence of the R&D over-outsourcing problem analyzing single-country small samples of firms. Moreover, most research has overlooked the endogeneity problems that can arise with firms' decisions on R&D. We investigate the external R&D–product innovation association, controlling for different types of research sources in a large collection of firms in five European countries. We find that external R&D enhances innovation outcomes until a certain threshold; beyond this threshold, firms face over-outsourcing. Furthermore, R&D acquired from universities shows to be most effective in promoting product innovations, whereas R&D acquired from firms within the same group has a larger effect on the intensity of innovative product sales.