Firm Growth and R&D Expenditure

Alex Coad () and Rekha Rao ()

Papers on Economics and Evolution from Max Planck Institute of Economics, Evolutionary Economics Group

Abstract: 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.

Keywords: Firm Growth; Panel VAR; R&D expenditure; Industrial Dynamics Length 32 pages (search for similar items in EconPapers)
JEL-codes: L10 L20 O32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cse, nep-ent, nep-ino, nep-mic and nep-tid
Date: 2007-11
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Persistent link: http://EconPapers.repec.org/RePEc:esi:evopap:2007-10

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