High Growth Firms, Innovation and Competition: The Case of the US Pharmaceutical Industry

Abstract

Firms across sectors and regions are highly skewed in their ability to engage with innovation, and even more skewed in their ability to translate investments in innovation into higher growth. Recent attention has been placed on the importance of ‘high growth firms’ (HGF) for innovation policy. Our paper explores under what conditions HGF matter for translating R&D investments into economic growth and how this depends on firm-specific and industry-specific factors. We use quantile regression techniques to study the R&D-growth relationship in HGF compared to low growth firms. Unlike previous studies, we pay particular attention to whether this relationship depends on the particular period in the industry’s life-cycle. We focus on the US pharmaceutical (pharma) industry from 1963 to 2002 and find that the R&D-growth relationship is sensitive to the changing competitive environment over the industry’s history, which suggests that innovation policy must focus not only on firm attributes but also competitive structures.