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Firm Growth and R&D Expenditure

  • Alexander Coad
  • Rekha Rao

We apply a panel vector autoregression model to a firm-level longitudinal database to observe the co-evolution of sales growth, employment growth, profits growth and growth of R&D expenditure. Contrary to expectations, profit growth seems to have little detectable effect on R&D investment. Instead, firms appear to increase their total R&D expenditure following growth in sales and growth of employment. In a sense, firms behave ‘as if’ they aim for a roughly constant ratio of R&D to employment (or sales). We observe heterogeneous effects for growing or shrinking firms however, suggesting that firms are less willing to reduce their R&D levels following a negative growth shock than they are willing to increase R&D after a positive shock.

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Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2007-10.

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Date of creation: Nov 2007
Date of revision:
Handle: RePEc:esi:evopap:2007-10
Contact details of provider: Postal: Deutschhausstrasse 10, 35032 Marburg
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  1. Henry Grabowski & John Vernon, 2000. "The determinants of pharmaceutical research and development expenditures," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 201-215.
  2. Paul A. David & Bronwyn H. Hall & Andrew A. Toole, 2005. "Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence," Development and Comp Systems 0502011, EconWPA.
  3. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2011. "Corporate growth and industrial dynamics: evidence from French manufacturing," Applied Economics, Taylor & Francis Journals, vol. 43(1), pages 103-116.
  4. Alex Coad, 2007. "Exploring the "mechanics" of firm growth : evidence from a short-panel VAR," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00175048, HAL.
  5. Binder, Michael & Hsiao, Cheng & Pesaran, M. Hashem, 2005. "Estimation And Inference In Short Panel Vector Autoregressions With Unit Roots And Cointegration," Econometric Theory, Cambridge University Press, vol. 21(04), pages 795-837, August.
  6. Alex Coad, 2007. "Neoclassical vs evolutionary theories of financial constraints : critique and prospectus," Documents de travail du Centre d'Economie de la Sorbonne r07008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  7. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  8. Dominique Guellec & Bruno Van Pottelsberghe De La Potterie, 2003. "The impact of public R&D expenditure on business R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(3), pages 225-243.
  9. Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, vol. 18(2), pages 189-216, March.
  10. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  11. Giulio Bottazzi & Angelo Secchi, 2003. "Common Properties and Sectoral Specificities in the Dynamics of U.S. Manufacturing Companies," Review of Industrial Organization, Springer, vol. 23(3), pages 217-232, December.
  12. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
  13. Joao Pedro Azevedo, 2004. "GRQREG: Stata module to graph the coefficients of a quantile regression," Statistical Software Components S437001, Boston College Department of Economics, revised 17 Mar 2011.
  14. repec:ebl:ecbull:v:15:y:2006:i:13:p:1-10 is not listed on IDEAS
  15. Alex Coad, 2005. "Testing the Principle of "Growth of the Fitter": The Relationship between Profits and Firm Growth," Emory Economics 0531, Department of Economics, Emory University (Atlanta).
  16. Alex Coad, 2007. "A Closer Look at Serial Growth Rate Correlation," Review of Industrial Organization, Springer, vol. 31(1), pages 69-82, August.
  17. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2011. "Corporate Growth and Industrial Dynamics: Evidence from French Manufacturing," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00642688, HAL.
  18. Spiros Bougheas & Holger Görg & Eric Strobl, 2003. "Is R & D Financially Constrained? Theory and Evidence from Irish Manufacturing," Review of Industrial Organization, Springer, vol. 22(2), pages 159-174, March.
  19. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
  20. Alex Coad & Rekha Rao, 2007. "Innovation and Firm Growth in High-Tech Sectors: A Quantile Regression Approach," Open Discussion Papers in Economics 57, The Open University, Faculty of Social Sciences, Department of Economics.
  21. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers.
  22. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, October.
  23. U. Witt & C. Zellner, 2005. "Knowledge-based Entrepreneurship: The Organizational Side of Technology Commercialization," Papers on Economics and Evolution 2005-04, Philipps University Marburg, Department of Geography.
  24. George Symeonidis, 1996. "Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes," OECD Economics Department Working Papers 161, OECD Publishing.
  25. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, vol. 29(4-5), pages 449-469, April.
  26. Alessio Moneta, 2005. "Causality in macroeconometrics: some considerations about reductionism and realism," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(3), pages 433-453.
  27. Holger Gorg & Eric Strobl, 2007. "The Effect of R&D Subsidies on Private R&D," Economica, London School of Economics and Political Science, vol. 74(294), pages 215-234, 05.
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