Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper investigates the commonly debated question about innovations and firm age. Are innovations made by incumbent firms, and does innovation therefore constitute a barrier to entry, or is innovation a way for new firms to successfully compete? The paper further investigates the relationship between firm size and innovation. Does innovation constitute a way for small firms to compete or are innovation a large firm phenomenon? In the analysis the paper explicitly distinguishes between product and process innovation. Data from 1997 and 1999 on product and process R&D, firm size and age in the Swedish manufacturing industry is used in the empirical analysis. A multinomial logit-model is used to estimate the probability of performing process and product R&D. The results show that there are complementarities between product and process R&D and very few firms conduct only process R&D. The probability of product R&D and combined product and process R&D is higher for large firms and firms that are older than 80 years. The size and age effects are more pronounced for firms that carry out both process and product R&D.

Keywords: Product; process; R&D; firm size; firm maturity

JEL-codes: L11; O31; O33

29 pages, October 18, 2005

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