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Discussion Paper Details

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Title: Innovating Firms and Aggregate Innovation

Author(s): Tor Jakob Klette and Samuel S Kortum

Publication Date: March 2002

Keyword(s): birth and death processes, endogenous growth theory, firm growth, market structure, productivity and r&d

Programme Area(s): Industrial Organization

Abstract: We develop a parsimonious model of innovating firms rich enough to confront firm-level evidence. It captures the dynamic behaviour 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 model yields insights into empirical work on innovating firms. It accounts for the persistence over time of firms' R&D investment, the concentration of R&D among incumbent 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.

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Bibliographic Reference

Klette, T and Kortum, S. 2002. 'Innovating Firms and Aggregate Innovation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3248