Working Paper | HBS Working Paper Series | 2012

Growth through Heterogeneous Innovations

by Ufuk Akcigit and William R. Kerr

Abstract

We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multi-product firms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects.

Keywords: Endogenous Growth; innovation; Exploration; Exploitation; Research and Development; patents; Citations; Scientists; entrepreneurs; 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.