Working Paper

R&D heterogeneity and its implications for growth

Author: Sigurd Mølster Galaasen and Alfonso Irarrazabal
Series: Working Paper
Number: 15/2016

Working Paper 15/2016 (PDF 628.8 Kb)


This paper quantifies the determinants of heterogeneity in R&D investment and its implications for growth. Using a panel of Norwegian manufacturing firms we document a negative correlation between R&D intensity and firm size, driven mainly by small firms with high R&D intensity. We estimate a Schumpeterian growth model with heterogeneous firms, that differ with respect to innovation efficiency. The estimated model fits the shape of the R&D investment distribution as well as the negative correlation between R&D intensity and firm size. A larger selection effect contribution to aggregate growth is found when we include R&D moments in the estimation. Finally, we study the link between firm heterogeneity and R&D subsidies, and show that the growth effects of subsidies depend crucially on how the policy influences the equilibrium distribution of firms.

Published 29 September 2016 09:15