Who's Doing Who? Growth of Sales, Employment, Assets, Profits and R&D Entangled in a Curious Five-Way Love Triangle

IPTS Working Papers on Corporate R&D and Innovation No. 03/2016

Posted: 30 Jun 2016

See all articles by Alex Coad

Alex Coad

CENTRUM Catolica Graduate Business School

Nicola Grassano

Joint Research Center of the European Commission

Date Written: 2016

Abstract

Understanding causal relationships among key economic variables is crucial for policy makers, who wish to e.g. stimulate private R&D growth. To this end, we applied a technique recently imported from the Machine Learning community (Structural Vector Autoregressions (SVARs) identified using Independent Components Analysis (ICA)) to a set of the world’s largest R&D investors. Our analysis highlights the key role of sales growth, rather than profits growth, in stimulating R&D growth. R&D growth appears at the end of the causal ordering of the growth process. Our results suggest that policies to increase private R&D would do better to target sales rather than profits.

Keywords: R&D investment, firm growth, SVAR, sales growth, industrial dynamics

JEL Classification: L25, O30

Suggested Citation

Coad, Alex and Grassano, Nicola, Who's Doing Who? Growth of Sales, Employment, Assets, Profits and R&D Entangled in a Curious Five-Way Love Triangle (2016). IPTS Working Papers on Corporate R&D and Innovation No. 03/2016, Available at SSRN: https://ssrn.com/abstract=2801621

Alex Coad (Contact Author)

CENTRUM Catolica Graduate Business School ( email )

1801 Universitaria Avenue
San Miguel
Lima, Lima Lima32
Peru

Nicola Grassano

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
Brussels, B-1049
Belgium

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