Scale and Innovation During Two U.S. Breakthrough Eras

The relationship between scale and innovation is central to R&D-based growth. This paper uncovers new empirical evidence using comprehensive data on U.S. R&D firms active during the interwar and post-WWII eras. Variability in the nature of innovation is shown to be a primary determinant of the scale effect with novel innovation scaling at approximately half the rate of normal technological discoveries. This result holds across time and for different firm types (public, private and external finance dependent). The findings help to explain why novel innovations tend to be developed in such unpredictable ways.