Determination of R&D investment in French firms: a two-part hierarchical model with correlated random effects

The aim of this paper is to identify the determinants of Research and development (R&D) investment in French firms. For analysis of covariate effects on R&D expenditures, a two-part model that combines a probit regression on the decision to perform R&D and a linear regression on log-positive expenditures is estimated. This two-part hierarchical model with a correlated random effect's structure accounts for both the skewed nature of firms' R&D expenditures data in French regions and the fact that firms' expenditures are correlated within the regions. In this study, we propose to identify which factors have affected French R&D investment in French manufacturing sectors in 2005. Estimations are based on a sample of 3308 French firms within 19 regions of France.