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1. Introduction

The growth and prosperity of economies depend to a high degree on private
investments in production capability. For many companies the production factor
knowledge plays a key role in their efforts to strengthen competitive capacity.
Enterprises invest in research and development (R&D) to maintain and to im-
prove their ability to compete. With growing global competition and shorter
product lifecycles many companies are searching for new ways to organize
their innovation processes. One approach to intensify the efficiency of the in-
novation work is to form a co-operation with other organisations in R&D. In
such partnerships all participants work freely and mutually together without
loosing their economic independence. The aim of this paper is to identify de-
terminants for companies to participate in R&D co-operations. Particular em-
phasis will be put on regional aspects of R&D co-operations.

In Germany the R&D co-operation is becoming increasingly popular (SV 2001,
p. 17). The first question we study is whether this form of joint R&D is used in
all parts of the country and where opportunities for small and medium sized
enterprises (SMEs) can be explicitly assumed. We also study the determinants
of the participation of companies in such partnerships and we discuss how
these efforts are reflected in the economic success of these companies. Spe-
cial emphasis is being put on the possible contribution of R&D co-operations to
diminish present location disadvantages in Eastern Germany.

The investigation starts with a comparison between the R&D activities of com-
panies in the Eastern and Western part of Germany - the two regions of the
country where, even more than ten years after the unification, the biggest dif-
ferences in economical progress and welfare can be observed. Then emphasis
will be put on the use of R&D co-operations and its appearances. To examine
the circumstances in which companies are likely to join R&D co-operations, a
logistical regression will be estimated. The paper ends with a discussion about
the role of the R&D co-operation in the innovation system in the German econ-
omy.

2. Data

The data are from a study by the Institut für Mittelstandsforschung Bonn (IfM
Bonn) by order of the Bundesverband der Deutschen Industrie e.V. (BDI) and
ERNST & YOUNG in summer 2001. The study was limited to companies in the
manufacturing industry (with the exception of the mining industry, energy in-



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