U.S. firms that invest in R&D have greater operational longevity than firms that do not. That is because when firms invest in R&D, they improve their competitiveness by developing innovative products and adopting innovative processes. By leading their respective industry sectors in innovation, these firms are more likely to succeed year-over-year and remain a mainstay in the economy over the long run.
Economists from the U.S. Census Bureau analyzed industry R&D data between 1992 and 2011 to identify firm survival rates. They tracked individual firms’ R&D expenditures and found that in any given year, 90 percent of R&D-performing firms likely existed in the preceding five years, while the percentage shrank to between 45 percent and 60 percent for all firms. When they tracked firms over a decade, they found even stronger evidence that R&D investments lead to a greater likelihood of survival. Over the survey period, 80 percent of R&D-performing firms continued operating after a decade, while the share decreased to 35 percent for all firms in the economy.
