Firm heterogeneity, R&D, and economic growth

Hyunbae Chun, Joonkyung Ha and Jung-Wook Kim

Economic Modelling, 2014, vol. 36, issue C, 149-156

Abstract: In this paper, we establish a link between firm heterogeneity and long-run economic growth both theoretically and empirically. We show that firms' technological heterogeneity creates the diversification effect for R&D financiers, facilitating R&D investment, and thus leading to long-run economic growth. This result holds even when heterogeneity limits the possibility of a synergy effect between firms with similar technologies. In testing the model's prediction using U.S. firm-level data, we define industries with higher firm-specific or idiosyncratic stock return volatility as those exhibiting higher firm-level technological heterogeneity and find a positive link between this measure and R&D intensity. Our paper implies that an economic growth policy aimed at increasing the diversity of the corporate sector may be more effective in attracting private R&D investments than the one aimed at concentration of resources on homogeneous projects due to the foregone diversification benefit of the latter.

Keywords: Firm heterogeneity; R&D; Technological change; Economic growth (search for similar items in EconPapers)
JEL-codes: G11 L16 O31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:36:y:2014:i:c:p:149-156

DOI: 10.1016/j.econmod.2013.09.028

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