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Empirical patterns of firm growth and R&D investment: a quality ladder model interpretation

  • Zvi Griliches
  • Tor Jakob Klette

We present a model of endogenous Ųm growth with R&D investment and stochastic innovation as the engines of growth. The model for Ųm growth is a partial equilibrium model drawing on the quality ladder models in the macro growth literature, but also on the literature on patent races and the discrete choice models of product diĥrentiation. We examine to what extent the assumptions and the empirical content of our model are consistent with many of the the Ůdings that have emerged from empirical studies of growth, productivity, R&D and patenting at the Ųm level. The analysis shows that the model Ŵs well with a number of empirical patterns such as (i) a skewed size distribution of Ųms with persistent diĥrences in Ųm sizes, (ii) Ųm growth independent of Ųm size, as stated in the so-called Gibrat's law, and (iii) R&D investment proportional to sales.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W99/25.

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Length: 30 pp.
Date of creation: Oct 1999
Date of revision:
Handle: RePEc:ifs:ifsewp:99/25
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