Does R&D Drive Growth

39 Pages Posted: 22 Jan 2014 Last revised: 7 Mar 2019

See all articles by Anne Marie Knott

Anne Marie Knott

Washington University in St. Louis - John M. Olin Business School

Carl Vieregger

Drake University, College of Business and Public Administration

Date Written: February 19, 2019

Abstract

Since at least Penrose and Chandler, we have understood that companies conduct R&D to grow. For the past several years, though, the strategy consulting division of PwC, Strategy&, has produced a report of the top 1,000 R&D firms. Their conclusion is rather surprising—R&D spending doesn’t drive growth. We draw on Romer’s theory of endogenous growth from R&D to understand why. After evaluating three common innovation measures, only one measure, RQ, satisfies the requirements for the R&D productivity construct in Romer’s theory. Based on tests with that measure, we demonstrate that R&D is indeed a driver of growth when R&D productivity is included in the model. Moreover, we show that the Strategy& observation is likely due to the fact the R&D productivity has been declining.

Keywords: R&D, market value, growth, RQ, TFP, patents

JEL Classification: D24, L25, O33

Suggested Citation

Knott, Anne Marie and Vieregger, Carl, Does R&D Drive Growth (February 19, 2019). Available at SSRN: https://ssrn.com/abstract=2382885 or http://dx.doi.org/10.2139/ssrn.2382885

Anne Marie Knott (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Carl Vieregger

Drake University, College of Business and Public Administration ( email )

2507 University Avenue
Des Moines, IA 50311
United States

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