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Growth through acquisition of innovations

Galina Besstremyannaya, Richard Dasher () and Sergei Golovan ()
Additional contact information
Richard Dasher: Stanford University
Sergei Golovan: New Economic School

No w0247, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: The paper develops a model of growth driven by the acquisition of domestic firms by their peers, treating innovations endogenously. The model builds on microeconomic evidence concerning acquisitions in a technology economy, where the acquirers are innovative firms, which regard acquisitions as a complementary strategy to their R&D investments. The targets are small firms with leading positions on markets for their products. The acquirers are capable of further improving the products of their targets. The model includes the government, which collects corporate profit tax and redistributes it to provide subsidies for innovation and for acquisitions. We quantify the model using 1999-2013 financial data for Japanese firms, matched with their patents. The estimates bear out the predictions of positive effect of acquisitions on economic growth. The impact of acquisitions on R&D intensity is negative under the substitutability between innovation and acquisition strategies. The effect of government subsidies to encourage acquisitions is linked to the parameters of the cost function and reflects the association between the cost of acquisitions and of R&D.

Keywords: innovation; endogenous growth; acquisition; social planner; patents (search for similar items in EconPapers)
JEL-codes: O11 O38 O40 O53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cse, nep-fdg, nep-ino, nep-knm and nep-tid
Date: 2019-08
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