GROWTH AND FIRM DYNAMICS WITH HORIZONTAL AND VERTICAL R&D

Pedro Gil, Paulo Brito () and Oscar Afonso

Macroeconomic Dynamics, 2013, vol. 17, issue 7, 1438-1466

Abstract: A negative or nonsignificant empirical correlation between aggregate R&D intensity and the economic growth rate is a well-known fact in the empirical growth literature, but scarcely addressed in the theoretical growth literature. This paper develops an endogenous-growth~model that explores the interrelation~between horizontal and vertical R&D under a lab-equipment specification that is consistent with that stylized fact. A key feature is that the growth rate is fully endogenous both on the intensive and on the extensive margin. Strong composition effects between horizontal and vertical R&D, along both transition and the balanced-growth path, then emerge as the main mechanism producing those results. This setting also allows us to obtain a relationship between economic growth and firm dynamics that is consistent with the empirical facts.

Date: 2013
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Working Paper: Growth and Firm Dynamics with Horizontal and Vertical R&D (2010)
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