GROWTH AND FIRM DYNAMICS WITH HORIZONTAL AND VERTICAL R&D

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.

The Quality of Intermediate Goods: Growth and Welfare Implications

“…Stokey (1988) and Aghion and Howitt (1992) build endogenous growth models to shed light on the importance of firms' R&D in an economy's performance, when innovation takes the form of higher-quality products. Peretto (1998Peretto ( , 1999 and Gil et al (2013) endogenise the market structure by considering both variety-expanded and quality-improved R&D. Their purposes are different from ours. These conventional quality-ladder models focus exclusively on vertical R&D activities, taking the number of product varieties as exogenously given.…”

“…These conventional quality-ladder models focus exclusively on vertical R&D activities, taking the number of product varieties as exogenously given. Peretto (1998Peretto ( , 1999 and Gil et al (2013) endogenise the market structure by considering both variety-expanded and quality-improved R&D. Their purposes are different from ours. While their studies attempt to match industrial organisation facts and to be immune from the empirically implausible scale effect, our purpose is to look into how the quality of intermediate goods interacts with the quantity of final goods and how this interaction governs economic growth and social welfare.…”

A Note on Skill-Structure Shocks, the Share of the High-Tech Sector, and Economic Growth Dynamics

“…We consider an R&D specication, as proposed by Gil, Brito, and Afonso (2013), that implies that the choice between vertical and horizontal innovation is related to the splitting of R&D expenditures, which are fully endogenous. Thus, we endogenise the rate of both intensive and extensive growth, and thereby production and the number of rms in each sector.…”

Endogenous Market Structure, Occupational Choice, and Growth Cycles

“…3 Other macroeconomic analyses that explicitly account for entry dynamics are, among others, those by Gil et al (2013); Zeng (2013); and Sanders (2013).…”