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R&D heterogeneity and its implications for growth

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Abstract
This paper quantifies the determinants of heterogeneity in R&D investment and its implications for growth. Using a panel of Norwegian manufacturing firms we document a negative correlation between R&D intensity and firm size, driven mainly by small firms with high R&D intensity. We estimate a Schumpeterian growth model with heterogeneous firms, that differ with respect to innovation efficiency. The estimated model fits the shape of the R&D investment distribution as well as the negative correlation between R&D intensity and firm size. A larger selection effect contribution to aggregate growth is found when we include R&D moments in the estimation. Finally, we study the link between firm heterogeneity and R&D subsidies, and show that the growth effects of subsidies depend crucially on how the policy influences the equilibrium distribution of firms.

Suggested Citation

  • Sigurd Mølster Galaasen & Alfonso Irarrazabal, 2016. "R&D heterogeneity and its implications for growth," Working Paper 2016/15, Norges Bank.
    • Handle: RePEc:bno:worpap:2016_15
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2016/152016/
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    Cited by:

    1. Rasmus Lentz & Dale Mortensen, 2016. "Optimal Growth Through Product Innovation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 4-19, January.

    More about this item

    Keywords

    R&D; Heterogeneous Firms; Subsidies; Growth;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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