Becker Friedman Institute

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Growth through Heterogeneous Innovations

We study how external versus internal innovations promote economic growth through a tractable endogenous growth framework with multiple innovation sizes, multi-product firms, and entry/exit. Firms invest in external R&D to acquire new product lines and in internal R&D to improve their existing product lines. A baseline model derives the theoretical implications of weaker scaling for external R&D versus internal R&D, and the resulting predictions align with observed empirical regularities for innovative firms. Quantifying a generalized model for the recent U.S. economy using matched Census Bureau and patent data, we observe a modest departure for external R&D from perfect scaling frameworks.

Authors: 
Ufuk Akcigit, University of Chicago
William Kerr, Harvard University
Publication Date: 
April, 2015
BFI Initiative: 
HCEO Working Groups: 
Publication Status: 
File: 
File Description: 
First version, October 2010