Journal
JOURNAL OF POLITICAL ECONOMY
Volume 126, Issue 4, Pages 1374-1443Publisher
UNIV CHICAGO PRESS
DOI: 10.1086/697901
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Funding
- Alfred P. Sloan Foundation
- Ewing Marion Kauffman Foundation
- Harvard Business School
- Innovation Policy and the Economy forum
- National Science Foundation
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We build a tractable growth model in which multiproduct incumbents invest in internal innovations to improve their existing products, while new entrants and incumbents invest in external innovations to acquire new product lines. External and internal innovations generate heterogeneous innovation qualities, and firm size affects innovation incentives. We analyze how different types of innovation contribute to economic growth and the role of the firm size distribution. Our model aligns with many observed empirical regularities, and we quantify our framework with Census Bureau and patent data for US firms. Internal innovation scales moderately faster with firm size than external innovation.
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