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Firm growth and R&D investment: SVAR evidence from the world’s top R&D investors

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  • Alex Coad
  • Nicola Grassano

Abstract

Understanding causal relationships among key economic variables is crucial for policy makers, who wish to e.g. stimulate private R&D growth. To this end, we applied a technique recently imported from the Machine Learning community (Structural Vector Autoregressions (SVARs) identified using Independent Components Analysis (ICA)) to a data-set of the world’s largest R&D investors. Our analysis highlights the key role of firm growth in the areas of employment and sales, rather than growth of profits or market capitalization, in stimulating R&D growth. R&D growth appears toward the end of the causal ordering of the growth process. Our results suggest that policies to increase private R&D would do better to target growth of sales and employment rather than market capitalization or profits.

Suggested Citation

  • Alex Coad & Nicola Grassano, 2019. "Firm growth and R&D investment: SVAR evidence from the world’s top R&D investors," Industry and Innovation, Taylor & Francis Journals, vol. 26(5), pages 508-533, May.
    • Handle: RePEc:taf:indinn:v:26:y:2019:i:5:p:508-533
    DOI: 10.1080/13662716.2018.1459295
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    Cited by:

    1. Abdulkadir Pehlivan & Bilal Gerekan & Mahmut Kocan, 2020. "The Effect of Operating Expenses on Growth and Performance: An Empirical Analysis of the Petroleum and Chemistry Industry in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(11), pages 1299-1308, November.
    2. Li, Junbao & Shi, Zhanzhong & He, Chengying & Lv, Chengshuang, 2023. "Peer effects on corporate R&D investment policies: A spatial panel model approach," Journal of Business Research, Elsevier, vol. 158(C).
    3. Pietro Moncada-Paternò-Castello, 2022. "Top R&D investors, structural change and the R&D growth performance of young and old firms," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 1-33, March.
    4. Giacomo Bormetti & Fulvio Corsi, 2021. "A Lucas Critique Compliant SVAR model with Observation-driven Time-varying Parameters," Papers 2107.05263, arXiv.org, revised Feb 2022.
    5. Alex Coad & Agustí Segarra-Blasco & Mercedes Teruel, 2021. "A bit of basic, a bit of applied? R&D strategies and firm performance," The Journal of Technology Transfer, Springer, vol. 46(6), pages 1758-1783, December.
    6. Andrin Spescha & Martin Woerter, 2021. "Research and development as an initiator of fixed capital investment," Journal of Evolutionary Economics, Springer, vol. 31(1), pages 117-145, January.
    7. Bahoo, Salman & Cucculelli, Marco & Qamar, Dawood, 2023. "Artificial intelligence and corporate innovation: A review and research agenda," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    8. Arash Ketabforoush Badri & Parsa Ketabforoush Badri & Mostafa Cham, 2019. "R&D Spending and Economic Growth in Selected OECD Countries," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 48-54.
    9. Fiorentini, Gabriele & Sentana, Enrique, 2023. "Discrete mixtures of normals pseudo maximum likelihood estimators of structural vector autoregressions," Journal of Econometrics, Elsevier, vol. 235(2), pages 643-665.
    10. Coad, Alex, 2019. "Persistent heterogeneity of R&D intensities within sectors: Evidence and policy implications," Research Policy, Elsevier, vol. 48(1), pages 37-50.
    11. Sebastiano Cattaruzzo & Agustí Segarra-Blasco & Mercedes Teruel, 2024. "Firm-level contributions to the R&D intensity distribution: evidence and policy implications," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 33(1), pages 45-65, January.
    12. Arora, Ashish & Cohen, Wesley & Lee, Honggi & Sebastian, Divya, 2023. "Invention value, inventive capability and the large firm advantage," Research Policy, Elsevier, vol. 52(1).

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