The Aggregate Effects of Acquisitions on Innovation and Economic Growth

50 Pages Posted: 12 Mar 2021 Last revised: 20 Jul 2021

See all articles by Christian Fons-Rosen

Christian Fons-Rosen

University of California, Merced

Pau Roldan-Blanco

Banco de España

Tom Schmitz

Bocconi University - Department of Economics

Date Written: February 14, 2021

Abstract

Large incumbent firms routinely acquire startups. This may stimulate aggregate growth, as acquisitions provide an incentive for startup creation and could transfer ideas to more efficient users. However, large firms do not always implement the ideas of their acquisition targets. Moreover, frequent acquisitions lower competition, which has an ambiguous effect on the innovation incentives of incumbents. To assess the net effect of these forces, we build a new endogenous growth model with heterogeneous firms and acquisitions. We discipline the model by matching aggregate moments and evidence from a rich micro dataset on acquisitions and patenting. Preliminary findings indicate that stricter antitrust policy would trigger somewhat higher growth.

Keywords: Acquisitions, Innovation, Productivity growth, Firm dynamics

JEL Classification: O30, O41, E22

Suggested Citation

Fons-Rosen, Christian and Roldan-Blanco, Pau and Schmitz, Tom, The Aggregate Effects of Acquisitions on Innovation and Economic Growth (February 14, 2021). Available at SSRN: https://ssrn.com/abstract=3785485 or http://dx.doi.org/10.2139/ssrn.3785485

Christian Fons-Rosen

University of California, Merced ( email )

P.O. Box 2039
Merced, CA 95344
United States

Pau Roldan-Blanco (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Tom Schmitz

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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