Working Paper | HBS Working Paper Series | 2016

Growth through Heterogeneous Innovations

by Ufuk Akcigit and William R. Kerr

Abstract

We build a tractable growth model where multi-product incumbents invest in internal innovations to improve their existing products, while new entrants and incumbents invest in external innovations to acquire new product lines. External and internal innovations generate heterogeneous innovation qualities, and firm size affects innovation incentives. This framework allows us to analyze how different types of innovation contribute to economic growth and how the firm size distribution can have important consequences for the types of innovations realized. Our model aligns with many observed empirical regularities, and we quantify our framework by matching Census Bureau operating data with patent data for U.S. firms. We observe that internal innovation scales moderately faster with firm size than external innovation.

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

Citation:

Akcigit, Ufuk, and William R. Kerr. "Growth through Heterogeneous Innovations." Harvard Business School Working Paper, No. 11-044, October 2010. (Revised September 2016.)