Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 02/2002: Innovating Firms and Aggregate Innovation

Tor Jakob Klette () and Samuel Kortum ()
Additional contact information
Tor Jakob Klette: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Samuel Kortum: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Minnesota, 1035 Heller Hall, 271 19th Avenue South, Minneapolis, MN 55455, USA, ,

Abstract: De develop a parsimonious model of innovating firms rich enough to confront firm-level evidence. It captures the dynamic behavior of individual heterogeneous firms, describes the evolution of an industry with simultaneous entry and exit, and delivers a general equilibrium model of technological change. While unifying the theoretical analysis of firms, industries, and the aggregate economy, the models yields insight into empirical work on innovating firms. It accounts for the persistence over time of firms’ R & D investments, the concentration of R & D among incumbents firms, and the link between R & D and patenting . Furthermore, it explains why R & D as a fraction of revenues is strongly related to firm productivity yet largely unrelated to firm size or growth.

Keywords: R&D; firm growth; productivity; market structure; endogeneous growth theory; birth and death processes

JEL-codes: L11; O31

45 pages, February 15, 2002

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Tor Jakob Klette and Samuel Kortum, 'Innovating Firms and Aggregate Innovation', Journal of Political Economy

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