R&D Heterogeneity and its Implications for Growth

51 Pages Posted: 17 Oct 2016

See all articles by Sigurd Galaasen

Sigurd Galaasen

Norges Bank

Alfonso Irarrazabal

Norge Bank; BI Norwegian School of Business

Date Written: September 29, 2016


This paper quantifies the determinants of heterogeneity in R&D investment and its implications for growth. Using a panel of Norwegian manufacturing firms we document a negative correlation between R&D intensity and firm size, driven mainly by small firms with high R&D intensity. We estimate a Schumpeterian growth model with heterogeneous firms, that differ with respect to innovation efficiency. The estimated model fits the shape of the R&D investment distribution as well as the negative correlation between R&D intensity and firm size. A larger selection effect contribution to aggregate growth is found when we include R&D moments in the estimation. Finally, we study the link between firm heterogeneity and R&D subsidies, and show that the growth effects of subsidies depend crucially on how the policy influences the equilibrium distribution of firms.

Keywords: R&D, Heterogeneous Firms, Subsidies, Growth

JEL Classification: L11, O3, O4

Suggested Citation

Galaasen, Sigurd and Irarrazabal, Alfonso and Irarrazabal, Alfonso, R&D Heterogeneity and its Implications for Growth (September 29, 2016). Norges Bank Working Paper 15/2016, Available at SSRN: https://ssrn.com/abstract=2852475 or http://dx.doi.org/10.2139/ssrn.2852475

Sigurd Galaasen (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107

Alfonso Irarrazabal

BI Norwegian School of Business ( email )

Norge Bank ( email )

Bankplassen 2
Oslo, 0151

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