Type: Working Paper
Product and Process Innovation in a Growth Model of Firm Selection
Working Paper, EUI ECO, 2009/30
BENEDETTI FASIL, Cristiana, Product and Process Innovation in a Growth Model of Firm Selection, EUI ECO, 2009/30 - http://hdl.handle.net/1814/12368
Retrieved from Cadmus, EUI Research Repository
Recent empirical evidence based on firm level data emphasizes firm heterogeneity in innovation activities and the different effects of process and product innovations on the productivity level and productivity growth. To match this evidence, this paper develops an endogenous growth model with two sources of firm heterogeneity: production efficiency and product quality. Both attributes evolve endogenously through firms’ innovation choices. Growth is driven by innovation and self-selection of firms and sustained by entrants who imitate incumbents. Calibrating the economy to match the Spanish manufacturing sector, the model enables to quantify the different effects of selection, innovation, and imitation as well as product and process innovation on growth. Compared to single attribute models of firm heterogeneity, the model provides a more complete characterization of firms’ innovation choices explaining the partition of firms along different innovation strategies and generating consistent firm size distributions.
Cadmus permanent link: http://hdl.handle.net/1814/12368
Series/Number: EUI ECO; 2009/30