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Scale effects in endogenous growth theory: an error of aggregation not specification

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  • Christopher Laincz
  • Pietro Peretto

Abstract

Modern Schumpeterian growth theory focuses on the product line as the main locus of innovation and exploits endogenous product proliferation to sterilize the scale effect. The empirical core of this theory consists of two claims: (i) growth depends on average employment (i.e., employment per product line); (ii) average employment is scale invariant. We show that data on employment, R&D personnel, and the number of establishments in the US for the period 1964–2001 provide strong support for these claims. While employment and the total number of R&D workers increase with no apparent matching change in the long-run trend of productivity growth, employment and R&D employment per establishment exhibit no long-run trend. We also document that the number of establishments, employment and population exhibit a positive trend, while the ratio employment/establishment does not. Finally, we provide results of time series tests consistent with the predictions of these models. Copyright Springer Science+Business Media, LLC 2006

Suggested Citation

  • Christopher Laincz & Pietro Peretto, 2006. "Scale effects in endogenous growth theory: an error of aggregation not specification," Journal of Economic Growth, Springer, vol. 11(3), pages 263-288, September.
    • Handle: RePEc:kap:jecgro:v:11:y:2006:i:3:p:263-288
    DOI: 10.1007/s10887-006-9004-9
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    More about this item

    Keywords

    Endogenous growth; R&D; Scale effects; Firm size; Establishments; E10; L16; O31; O40;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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