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Firm heterogeneity, R&D, and economic growth

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

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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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 36 (2014)
Issue (Month): C ()
Pages: 149-156

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Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:149-156
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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