External and internal knowledge in the KGF

This chapter implements the notion of s recombinant knowledge generation function, and explores the role of internal and external knowledge in the generation of new technological knowledge. It enables us to appreciate: 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 on 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 to the generation of new technological knowledge.