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Bank of Finland Research Discussion Papers, Bank of Finland

No 28/2013:
Growth through heterogeneous innovations

Ufuk Akcigit () and William R. Kerr ()

Abstract: We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multi-product firms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects.

Keywords: endogenous growth; innovation; exploration; exploitation; research and development; patents; citations; scientists; entrepreneurs; (follow links to similar papers)

JEL-Codes: L16; O31; O33; O41; (follow links to similar papers)

80 pages, November 22, 2013

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