Working Paper | HBS Working Paper Series | 2015

Growth through Heterogeneous Innovations

by Ufuk Akcigit and William R. Kerr


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.

Keywords: Endogenous Growth; innovation; Exploration; Exploitation; Research and Development; patents; Citations; Scientists; entrepreneurs; External; Internal; Patents; Innovation Strategy; Entrepreneurship; Economic Growth; Research and Development; Science;


Akcigit, Ufuk, and William R. Kerr. "Growth through Heterogeneous Innovations." Harvard Business School Working Paper, No. 11-044, October 2010. (Revised March 2015.)