Abstract: Although many management consultants suggest that enterprises can outsource some technology developing activities, but the nature of effects and the conditions between internal R&D and external technology acquisitions are poorly understood. This paper constructs an innovation production translog function, and we apply the innovation input-output data of large and medium-sized industrial enterprises in China's 31 provinces to test the complementarities between internal R&D and external R&D. The research results show that, when the enterprise has stronger ability to absorb technology, large economies of scale and the technology transfer experiences, the degree of complementarities between internal and external R&D is strong. The results also show that enterprise's R&D investment (technology development) and external technology purchasing are substitutability. It shows that the substitution and complementarities of external technology are different at enterprise's different stages and different forms of technical activities.

Key words: internal R&D, external R&D, substitutability, complementarities