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Firm heterogeneity, R&D, and economic growth

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  • Chun, Hyunbae
  • Ha, Joonkyung
  • Kim, Jung-Wook

Abstract

In this paper, we establish a link between firm heterogeneity and long-run economic growth both theoretically and empirically. We show that firms' technological heterogeneity creates the diversification effect for R&D financiers, facilitating R&D investment, and thus leading to long-run economic growth. This result holds even when heterogeneity limits the possibility of a synergy effect between firms with similar technologies. In testing the model's prediction using U.S. firm-level data, we define industries with higher firm-specific or idiosyncratic stock return volatility as those exhibiting higher firm-level technological heterogeneity and find a positive link between this measure and R&D intensity. Our paper implies that an economic growth policy aimed at increasing the diversity of the corporate sector may be more effective in attracting private R&D investments than the one aimed at concentration of resources on homogeneous projects due to the foregone diversification benefit of the latter.

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  • Chun, Hyunbae & Ha, Joonkyung & Kim, Jung-Wook, 2014. "Firm heterogeneity, R&D, and economic growth," Economic Modelling, Elsevier, vol. 36(C), pages 149-156.
    • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:149-156
    DOI: 10.1016/j.econmod.2013.09.028
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    10. Sajid Anwar & Sizhong Sun, 2014. "Entry of foreign firms and the R&D behaviour: a panel data study of domestic and foreign firms in China's manufacturing sector," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(8), pages 739-757, November.
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    More about this item

    Keywords

    Firm heterogeneity; R&D; Technological change; Economic growth;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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