R&D intensity, economic growth and firm-size growth: theory and practice

Oscar Afonso

Applied Economics, 2016, vol. 48, issue 32, 2973-2993

Abstract: This article proposes a theoretical knowledge-driven horizontal research and development (R&D) endogenous-growth model to explain, for 10 innovative countries, the co-movement of the respective R&D intensity, economic growth and firm-size growth, by exploring short-medium-run and long-run growth effects. Bearing in mind some recent literature, we improve the R&D technology, by considering that R&D is more labour intensive through time as complexity increases, that the diffusion of designs is affected by coordination, organizational and transportation costs, and that a potential entrant will come up with the right idea is reduced because of the presence of a larger number of entrants. We show that when the economy is not initially in a steady state, it can take a saddle path towards the unique and locally saddle-path stable interior steady state. Both transitional-dynamics and steady-state behaviours of our theoretical model are then consistent with, respectively, the time-series and the cross-sectional evidence.

Date: 2016
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/00036846.2015.1133896

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