Working Paper: NBER ID: w8819
Authors: Tor Jakob Klette; Samuel Kortum
Abstract: We develop a parsimonious model of innovating firms rich enough to confront firm-level evidence. It captures the dynamic behavior of individual heterogenous firms, describes the evolution of an industry with simultaneous entry and exit, and delivers a general equilibrium model of technological change. While unifying the theoretical analysis of firms, industries, and the aggregate economy, the model yields insights into empirical work on innovating firms. It accounts for the persistence over time of firms' R&D investment, the concentration of R&D among incumbent firms, and the link between R&D and patenting. Furthermore, it explains why R&D as a fraction of revenues is strongly related to firm productivity yet largely unrelated to firm size or growth.
Keywords: No keywords provided
JEL Codes: L11; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D investment (O32) | firm productivity (D22) |
| R&D investment (O32) | patenting outcomes (O36) |
| R&D intensity (O32) | firm size independence (L25) |
| R&D investment (O32) | number of patents (O34) |
| innovation success (O36) | firm survival (L21) |
| firm size distribution (L25) | exit probabilities (C62) |