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1 results

  • GROWTH AND FIRM DYNAMICS WITH HORIZONTAL AND VERTICAL R&D

  • Pedro Mazeda Gil, Paulo Brito, Oscar Afonso
  • Journal:
    Macroeconomic Dynamics / Volume 17 / Issue 7 / October 2013
    Published online by Cambridge University Press:
    06 February 2013, pp. 1438-1466

  • A negative or nonsignificant empirical correlation between aggregate R&D intensity and the economic growth rate is a well-known fact in the empirical growth literature, but scarcely addressed in the theoretical growth literature. This paper develops an endogenous-growth~model that explores the interrelation~between horizontal and vertical R&D under a lab-equipment specification that is consistent with that stylized fact. A key feature is that the growth rate is fully endogenous both on the intensive and on the extensive margin. Strong composition effects between horizontal and vertical R&D, along both transition and the balanced-growth path, then emerge as the main mechanism producing those results. This setting also allows us to obtain a relationship between economic growth and firm dynamics that is consistent with the empirical facts.