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Growth and Firm Dynamics with Horizontal and Vertical R&D

  • Pedro Rui Mazeda Gil

    ()

    (CEF.UP and Faculdade de Economia, Universidade do Porto)

  • Paulo Brito

    ()

    (Instituto Superior de Economia e Gestão and UECE, Universidade Técnica de Lisboa)

  • Óscar Afonso

    ()

    (CEF.UP and Faculdade de Economia, Universidade do Porto)

This paper develops a tournament model of horizontal and vertical R&D under a lab-equipment specification. A key feature is that the overall growth rate is endogenous, as the splitting of the growth rate between the intensive and the extensive margin is itself endogenous. This setup gives rise to strong inter-R&D composition effects, while making economic growth and firm dynamics closely related, both along the balanced-growth path and transition. The model hence offers a (qualitative) explanation for the negative or insignificant empirical correlation between aggregate R&D intensity and both firm size and economic growth, a well-known puzzle in the growth literature.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/10.01.11_wp356.pdf
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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 356.

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Length: 29 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:por:fepwps:356
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