The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports

Philippe Aghion, Antonin Bergeaud, Matthieu Lequien and Marc J. Melitz
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Philippe Aghion: Collège de France, LSE, and PSE
Marc J. Melitz: Harvard University and NBER

The Review of Economics and Statistics, 2024, vol. 106, issue 3, 608-626

Abstract: We analyze how demand conditions faced by a firm in its export markets affect its innovation decisions. We exploit exogenous firm-level export demand shocks and find that firms respond by patenting more; furthermore, this response is driven by the subset of initially more productive firms. The patent response arises two to five years after the shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms regardless of their productivity. This skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity.

Date: 2024
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Related works:
Working Paper: The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports (2024)
Working Paper: The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports (2024)
Working Paper: The Heterogeneous Impact of Market Size on Innovation:Evidence from French Firm-Level Exports (2020)
Working Paper: The heterogeneous impact of market size on innovation: evidence from French firm-level exports (2019)
Working Paper: The heterogeneous impact of market size on innovation: evidence from French firm-level exports (2019)
Working Paper: The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports (2018)
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